Value Strategy
Ariel Appreciation Fund

Why Ariel’s value approach


Ariel’s flagship value approach is built on the basic principle of targeting undervalued companies that show a strong potential for growth. We take advantage of the market’s short-term thinking to optimize long-term results for our clients.

Our track record is one of the longest in the business

As a pioneer in small- and mid-cap value investing, our 30-year history has been distinguished by excellent long-term results—attributable to one portfolio manager for the duration.

Clearly defined parameters enhance our screening outcomes

We look for differentiated companies with strong brands/franchises, strong cash flows, low debt, high-quality products or services, significant barriers to entry (moats) and low reinvestment requirements.

Concentrated yet diversified portfolios focus on our highest-conviction ideas

We choose to go deep instead of broad, often taking a contrarian point of view.

In-depth sector and industry expertise informs each investment decision

Our portfolio managers and research analysts evaluate companies within a well-established "circle of competence" — industries where we are truly experts.

Risk management is a top priority

We define risk as a permanent loss of capital, controlled at the portfolio and stock level via allocation limits, our focus on private market value (PMV) and our in-depth understanding of the companies we choose.

We also mitigate risk by investing with a margin of safety (40% discount to PMV), employing proprietary debt and moat ratings and using a devil’s advocate to challenge our own views.



Margin of Safety: Attempting to purchase with a margin of safety on price cannot protect investors from the volatility associated with stocks, incorrect assumptions or estimations on our part, declining fundamentals or external forces.

Key Facts
Market Cap Range: generally between $2 billion and $15 billion
Inception:
Investor Class: 12/01/1989
Institutional Class: 12/30/2011
Number of holdings: 25-45
Turnover: 20-30%
Ticker Symbol:
Investor Class: CAAPX
Institutional Class: CAAIX
Fund Assets (all classes):
$1.9 billion as of 09/30/2014
 
Portfolio Managers
John W. Rogers, Jr.
Co-Portfolio Manager
Fidler_Tim_Web.png Timothy Fidler, CFA ®
Co-Portfolio Manager
 
Fund Spotlight
Despite the recent market rally, there are still values to be found. John W. Rogers, Jr. shares his current stock picks.
"People aren't always rational, and that's good for value investors."
— John W. Rogers, Jr. in Forbes
 

Our value investment philosophy


Patience

We take the long-term view.
  • Look past short-term noise: three- to five-year horizon enables us to be opportunistic when price dislocations arise
  • Take our time to research a potential holding and patiently wait for the margin of safety (40% discount to PMV) we require
  • Build expertise and accumulate deep knowledge; develop and cultivate independent sources to inform our stock picking

Independence

We invest to our convictions, not to benchmarks.
  • Build truly active portfolios concentrated in a limited number of names and industries
  • Buy out-of-favor, misunderstood and ignored stocks
  • Buy when others are selling, and sell when others are buying

Expertise

We specialize in bottom-up, fundamental analysis.
  • Draw on extensive reading, industry expertise, and computer screening to identify overlooked opportunities
  • Surround company to identify prospects - and problems - others don't recognize
  • Ask questions to gain insight, not just information

Teamwork

We work collaboratively with a shared commitment to excellence.
  • Leverage contacts and knowledge across portfolios
  • Senior research team input informs final decisions made by lead or co-portfolio manager



Margin of Safety: Attempting to purchase with a margin of safety on price cannot protect investors from the volatility associated with stocks, incorrect assumptions or estimations on our part, declining fundamentals or external forces.


 
Independent Thinking
John W. Rogers, Jr. on
Independent Thinking
 
TF-Focus-Expertise.png
Tim Fidler on
Focus and Expertise
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Our value process


Idea Generation

Looking through a long-term lens helps identify ideas others might not consider
  • Process:
    Generate ideas from industry knowledge, extensive reading and computer screening
  • Risk management:
    Look for out-of-favor, misunderstood and ignored stocks whose low prices reduce the risk of owning them
  • Benefit:
    In-depth industry knowledge helps uncover investment ideas others may have overlooked

Bottom-up Research

Bottom-up research determines underlying value and identifies key issues
  • Process:
    Extensive valuation work and independent verification
  • Risk management:
    Seek to invest in companies whose equities are trading at a 40% discount to PMV and/or 13x or less next year's earnings
  • Benefit:
    Helps us find quality companies in industries where our expertise adds value

Team Validation

Team review and debate test the validity of our convictions
  • Process:
    Rigorous debate and discussion
  • Risk management:
    A devil's advocate may be assigned to challenge an investment thesis
  • Benefit:
    Ideas vetted from multiple perspectives yield more informed final decisions by portfolio manager(s)

Portfolio Construction

Concentrated yet diversified portfolios drive better outcomes
  • Process:
    Build concentrated yet diversified portfolios weighted by conviction
  • Risk management:
    Strict buy and sell criteria
  • Benefit:
    Unique portfolio with benchmark-agnostic industry weightings drives high active share and thereby helps generate alpha

Ariel Appreciation Fund

Sector Weightings (%)

As of September 30, 2014
  Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Financial Services 36.84 32.90 21.98 17.74
Consumer Discretionary 25.63 10.58 17.80 13.27
Producer Durables 18.36 9.56 12.62 10.58
Health Care 14.55 8.77 10.55 13.74
Consumer Staples 3.56 3.25 5.48 8.42
Energy 1.06 5.43 6.12 9.73
Utilities 0.00 12.37 6.39 5.43
Materials and Processing 0.00 7.90 6.97 3.83
Technology 0.00 9.25 12.09 16.97



Represents percentage of total equity holdings in the portfolio



Ariel Appreciation Fund

Portfolio Characteristics

As of September 30, 2014
  Market Capitalization Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Market Capitalization (In billions)        
Large Capitalization 84.51 & Above 0.0 0.0 0.0 46.9
Medium/Large Capitalization 24.44 -- 84.51 16.9 3.2 6.4 32.1
Medium Capitalization 7.97 -- 24.44 43.7 55.5 58.0 18.3
Medium/Small Capitalization 3.04 -- 7.97 24.0 36.2 32.5 2.6
Small Capitalization 3.04 & Below 15.4 5.1 3.1 0.0
Dollar-Weighted Average (BIL)*   $9.23 $9.21 $10.07 $71.75
Valuation Metrics  
Forward Price/Earnings   14.7 15.9 17.5 15.8
Trailing Price/Earnings   17.2 21.5 24.5 19.1
Discount to Private Market Value   -18.0 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth **   10.9 10.6 13.0 11.2
Interest Coverage Ratio   8.4 4.3 5.1 8.8
Portfolio Construction  
Number of Holdings   39 566 838 502
Turnover   23.7 n/a n/a n/a



Market Capitalization data, Valuation Metrics, Fundamentals and Number of Holdings are obtained from BNY Mellon. Portfolio Turnover is generated internally through Fiserv APL.

*Market Capitalization is a dollar-weighted average natural log. Using the natural log of each stock’s market capitalization reduces the weight given to the largest companies in a simple averaging process.
**This measure is not a forecast of the fund’s performance.

The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Index represents approximately 27% of the total market capitalization of the Russell 1000 companies. Russell® is a trademark of Russell Investment Group, which is the source and owner of the Russell Indexes’ trademarks, service marks and copyrights. The S&P 500® Index is the most widely accepted barometer of the market. It includes 500 blue chip, large cap stocks, which together represent about 75% of the total U.S. equities market.

Investor Class
Institutional Class
Quarter End
Month End
Ariel Appreciation Fund

Performance

As of September 30, 2014
Inception date: December 1, 1989 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Appreciation Fund -4.18% -2.97% 0.72% 12.22% 25.63% 16.54% 8.80% 11.21%
Russell Midcap® Value Index -3.80% -2.64% 8.20% 17.46% 24.72% 17.24% 10.17% 11.85%
Russell Midcap® Index -3.34% -1.66% 6.87% 15.83% 23.79% 17.19% 10.34% 11.56%
S&P 500® Index -1.40% 1.13% 8.34% 19.73% 22.99% 15.70% 8.11% 9.52%
Ariel Appreciation Fund

Performance

As of September 30, 2014
Inception date: December 1, 1989 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Appreciation Fund -4.18% -2.97% 0.72% 12.22% 25.63% 16.54% 8.80% 11.21%
Russell Midcap® Value Index -3.80% -2.64% 8.20% 17.46% 24.72% 17.24% 10.17% 11.85%
Russell Midcap® Index -3.34% -1.66% 6.87% 15.83% 23.79% 17.19% 10.34% 11.56%
S&P 500® Index -1.40% 1.13% 8.34% 19.73% 22.99% 15.70% 8.11% 9.52%
Expense Ratio as of the fiscal year ended 9/30/13: 1.13%

Investing in mid-cap stocks is more risky and volatile than investing in large-cap stocks. The intrinsic value of the stocks in which the Fund invests may never be recognized by the broader market. Ariel Appreciation Fund often invest a significant portion of its assets in companies within the financial services and consumer discretionary sectors and its performance may suffer if these sectors underperform the overall stock market. Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.

The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Index represents approximately 27% of the total market capitalization of the Russell 1000 companies. Russell® is a trademark of Russell Investment Group, which is the source and owner of the Russell Indexes’ trademarks, service marks and copyrights. The S&P 500® Index is the most widely accepted barometer of the market. It includes 500 blue chip, large cap stocks, which together represent about 75% of the total U.S. equities market.

Average Annual Total Return does not reflect a maximum 4.75% sales load charged prior to 07/15/94.

Investors should consider carefully the investment objectives, risks, and charges and expenses before investing. For a current summary prospectus or full prospectus which contains this and other information about the funds offered by Ariel Investment Trust, call us at 800-292-7435 or click here. Please read the summary prospectus or full prospectus carefully before investing. Distributed by Ariel Distributors, LLC, a wholly-owned subsidiary of Ariel Investments, LLC.

Ariel Appreciation Fund

Commentary

 
Monthly Commentary: Perspectives on the current market
Quarterly Report: Quarterly performance update and communication to investors
Fact Sheets: Quarterly overview of fund objectives and performance summary
Morningstar Analyst Report: Independent fund report published by Morningstar
Ariel Appreciation Fund

Schedule of Holdings

As of September 30, 2014
Shares Security Description CUSIP Ticker Current Value ($) % of
Net
Assets
Top Ten Equity Holdings
3,252,400 First American Financial Corp. 31847R102 FAF 88,205,088 4.5
1,274,518 Bristow Group Inc. 110394103 BRS 85,647,609 4.4
5,184,700 Western Union Co. 959802109 WU 83,162,588 4.3
909,599 Stanley Black & Decker, Inc. 854502101 SWK 80,763,295 4.1
1,025,500 Northern Trust Corp. 665859104 NTRS 69,764,765 3.6
1,376,020 Lazard Ltd G54050102 LAZ 69,764,214 3.6
1,248,300 Franklin Resources, Inc. 354613101 BEN 68,169,663 3.5
664,200 Zimmer Holdings, Inc. 98956P102 ZMH 66,785,310 3.4
662,275 J.M. Smucker Co. 832696405 SJM 65,558,602 3.4
3,545,630 Interpublic Group of Cos., Inc. 460690100 IPG 64,955,942 3.3
900,400 Nordstrom, Inc. 655664100 JWN 61,560,348 3.2
999,800 AFLAC Inc. 001055102 AFL 58,238,350 3.0
441,600 JLL 48020Q107 JLL 55,791,744 2.9
802,600 Omnicom Group Inc. 681919106 OMC 55,267,036 2.8
1,303,400 Kennametal Inc. 489170100 KMT 53,843,454 2.8
610,950 Illinois Tool Works Inc. 452308109 ITW 51,576,399 2.6
1,577,656 International Speedway Corp. 460335201 ISCA 49,917,036 2.6
817,300 St. Jude Medical, Inc. 790849103 STJ 49,144,249 2.5
638,000 City National Corp. 178566105 CYN 48,277,460 2.5
872,600 CBS Corp. 124857202 CBS 46,684,100 2.4
377,300 Snap-on Inc. 833034101 SNA 45,683,484 2.3
443,200 Laboratory Corp. of America Holdings 50540R409 LH 45,095,600 2.3
366,054 Thermo Fisher Scientific Inc. 883556102 TMO 44,548,772 2.3
537,200 Viacom, Inc. 92553P201 VIAB 41,332,168 2.1
731,800 Hospira, Inc. 441060100 HSP 38,075,554 2.0
1,120,100 Blackstone Group L.P. 09253U108 BX 35,260,748 1.8
988,700 Newell Rubbermaid Inc. 651229106 NWL 34,021,167 1.7
1,516,168 KKR & Co. L.P. 48248M102 KKR 33,810,546 1.7
899,700 Coach, Inc. 189754104 COH 32,038,317 1.6
1,037,700 Gannett Co., Inc. 364730101 GCI 30,788,559 1.6
424,600 Madison Square Garden Co. 55826P100 MSG 28,074,552 1.4
311,500 T. Rowe Price Group, Inc. 74144T108 TROW 24,421,600 1.3
214,725 Bio-Rad Laboratories, Inc. 090572207 BIO 24,349,815 1.3
790,150 CBRE Group, Inc. 12504L109 CBG 23,499,061 1.2
209,500 Towers Watson 891894107 TW 20,845,250 1.1
1,405,442 Janus Capital Group Inc. 47102X105 JNS 20,435,127 1.1
556,900 Sotheby's 835898107 BID 19,892,468 1.0
586,482 Contango Oil & Gas Co. 21075N204 MCF 19,494,662 1.0
80,400 Tiffany & Co. 886547108 TIF 7,743,324 0.4
96,157,897 Fixed Income Clearing Corporation     96,157,897 4.9
  Cash, Other Assets and Liabilities     8,580,488 0.5
Grand Total   $1,947,226,411 100.0%  

Past performance does not guarantee future results. © Ariel Investments, LLC. The mutual funds offered by Ariel Investment Trust are distributed by Ariel Distributors, LLC. Use of this website is subject to our Terms & Conditions of use. Each of the investment products, mutual funds or services referred to in this site may be offered only to persons in the United States. This web site should not be considered a solicitation or offering of any investment products, funds or services to investors outside the United States. Original illustrations © Omar Rayyan 2007.