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TWST: How have the eFinance companies fared in the recent past?

Mr. Repetto: The last 12 months certainly have not been good for the eFinance companies. Between the highs of the NASDAQ last March until now, most of the eFinance stocks we follow have hit their 52-week lows over the past few months. There has been a reevaluation of Internet and eFinance stocks over that time frame and the multiples of these companies have come down dramatically. A lot of the shine and the hype of the Internet has been diluted. Unfortunately, that’s the foundation from which to assess these stocks and their valuations going forward. We expect that Internet stocks in general and eFinance stocks specifically will be valued more closely with their traditional peers.

TWST: E-Loan (Nasdaq:EELN) is currently on your list as a Hold. What creates that assessment?

Mr. Repetto: I continue to like what they’re doing. They’re a multi-lender — they’re involved in the mortgage, auto, personal lines and credit cards areas. The big issue with E-loan has been the slow adoption of the paperless mortgage — slower than we anticipated — and that rate is pretty much out of their control. You are just not going to see the majority of county recorders and county courthouses accept a digital mortgage origination anytime soon. That means that they’re not going to be able to wring the cost out of the system until they can automate a lot more of the fulfillment process. That’s probably the biggest drawback. On the positive side, with interest rates falling we’ve seen a dramatic growth in refinancings, which are Internet-friendly products as compared to the purchase mortgage. E-Loan had a strong fourth quarter of last year, and they should have strong quarters for the next two. The auto loan product, like refinancings (a very Internet-friendly product in our view), has also been ramping up with the implementation of E-Loan’s multi-lender platform. It’s just that investors have gotten chilled to the online lenders as the whole process (for mortgages) just hasn’t been as strong as the expectations.

TWST: For both of these companies, what downside is there? What upside surprise is there?

Mr. Repetto: The surprise for the upside is the surging refinance volume. Any significant material progress in automating the mortgage process is a second positive. We’ve seen electronic signatures (ES) approved by the government. The issue is that ES hasn’t been adopted and it’s not accepted by the lower levels of government. So anything that speeds the process of a digital mortgage where you can remove the paper cost, the processing cost, could be upside for the lenders. Auto loans are a simpler process and are friendlier to the Internet compared to a purchase mortgage. We are starting to see some reasonable adoption by borrowers of auto loans over the Internet, as I mentioned in regard to E-Loan earlier.

TWST: As an investor looks at these companies, where do they fit into the investment strategy and philosophy within the financial services portfolio?

Mr. Repetto: These stocks represent the growth stocks of the financial service sector. If you’re looking to diversify and to have some part of the portfolio with significant upside after a lower valued base, then these are the right stocks. Timing and selectivity are the issues the investor has to address. They fit where a customer is willing to accept more risk, but for a higher potential return. Overall, in the financial services, these stocks should be some of the first to rebound as investors start taking the view that the worst is over. They’ll look to the financial stocks that are cyclical as being the first to recover.