VIVIENNE HSU
VICE-PRESIDENT & SENIOR PORTFOLIO MANAGER
CHARLES SCHWAB INVESTMENT MANAGEMENT

COMPANY: Investment Technology Group
TICKER: ITG (NYSE)
PRICE: $54.75
52-WEEK RANGE: $18.25-$57
MARKET CAPITALIZATION: $2.3 billion

Ms. Hsu is a member of the senior equity management team that oversees Schwab Funds and manages various Hedge Equity Funds. Ms. Hsu spoke with Katharine Herrup of The New York Sun about why the Investment Technology Group may be the risky little engine that could.

What does the company do?

They provide equity trading services to institutional investors. They are specialized in that they have an electronic exchange platform, which facilitates an anonymous exchange. They are a pioneer of this platform and one of the largest players. [ITG is like a Goldman Sachs and Morgan Stanley, but not nearly as big a company as they are.]

Why do you like the stock?

The stock is up about 8%. We’ve liked this stock for more than a year now. The ratings for ITG have been favorable since 2005.

ITG has acquired new firms, which has made the company more versatile and robust. This has increased their price and revenue. They are able to grow the company without having to borrow, which is pretty unique. They are able to fund their own growth with their own operations. Overall, what we look for on companies is that they have the propensity to surprise the market. ITG can still surprise the market and it looks favorable.What we look for in the surprise is a reaction in the stock price.

How do you expect the company/industry to perform going forward?

In 2005 they were just coming out of a slump from the 2002 period. Firms like ITG didn’t have the trading volume then.They didn’t have a lot of businesses that helped them diversify their revenue, but then they started to be discovered by investment firms and the price of the stock reacted to that. ITG has also diversified internationally.

Is it a good time to buy?

ITG may look pricey. A year ago it was about $18. Despite the increase in price, ITG doesn’t look like it’s going to run out of steam.This stock is not as favorably valued as it was in January ’05, but it is rated an A in our eyes.

To us, the score right now is a neutral score. Based on equity ratings, it has strong fundamentals. We think that ITG has room to grow. ITG is still able to beat market expectations in terms of earnings. It’s still a good buy. Off and on since January of 2005, ITG has been highly rated.

What are the risks?

It carries risk, but it’s not risky compared to companies in its own sector. I don’t think they have anything exceptionally risky for them that other companies don’t have as well.