Value Strategy
Ariel 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 $1 billion and $7.5 billion
Inception:
Investor Class: 11/06/1986
Institutional Class: 12/30/2011
Number of holdings: 25-45
Turnover: 20-30%
Ticker Symbol:
Investor Class: ARGFX
Institutional Class: ARAIX
Fund Assets (all classes):
$2.1 billion as of 06/30/2014
 
Portfolio Managers
John W. Rogers, Jr.
Lead Portfolio Manager
John P. Miller, CFA
Portfolio Manager
Kenneth E. Kuhrt Kenneth E. Kuhrt, CPA
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.


 
JWR-Independent-Thinking.png
John W. Rogers, Jr. on
Independent Thinking
 
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Ken Kuhrt on
The Importance of Patience
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Investor Class
Institutional Class
Quarter End
Month End
Ariel Fund

Performance

As of July 31, 2014
Inception date: November 6, 1986 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Fund -3.17% 4.56% 2.02% 17.08% 16.60% 20.37% 7.76% 11.66%
Russell 2500™ Value Index -4.81% 0.33% 2.67% 12.49% 15.58% 18.07% 9.31% 11.63%
Russell 2000® Value Index -6.05% -1.27% -2.10% 8.18% 13.55% 15.83% 8.07% 10.80%
S&P 500® Index -1.38% 3.02% 5.66% 16.94% 16.84% 16.79% 8.00% 10.22%
Ariel Fund

Performance

As of June 30, 2014
Inception date: November 6, 1986 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Fund 5.79% 6.42% 5.36% 29.50% 15.34% 24.25% 7.54% 11.83%
Russell 2500™ Value Index 4.33% 4.20% 7.87% 24.94% 16.02% 21.58% 9.40% 11.87%
Russell 2000® Value Index 4.42% 2.38% 4.20% 22.54% 14.65% 19.88% 8.24% 11.09%
S&P 500® Index 2.07% 5.23% 7.14% 24.61% 16.58% 18.83% 7.78% 10.31%
Expense Ratio as of the fiscal year ended 9/30/13: 1.03%

Investing in small cap and mid-cap stocks is more risky and more 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 Fund often invests 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 2500™ Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. 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 Fund

Schedule of Holdings

As of June 30, 2014
Shares Security Description CUSIP Ticker Current Value ($) % of
Net
Assets
Top Ten Equity Holdings
2,575,253 CBRE Group, Inc. 12504L109 CBG 82,511,106 3.9
645,499 JLL 48020Q107 JLL 81,584,619 3.8
3,301,839 KKR & Co. L.P. 48248M102 KKR 80,333,743 3.8
2,546,021 Gannett Co., Inc. 364730101 GCI 79,715,917 3.7
1,510,703 Lazard Ltd G54050102 LAZ 77,891,847 3.6
6,183,516 Janus Capital Group Inc. 47102X105 JNS 77,170,280 3.6
1,205,158 Fair Isaac Corp. 303250104 FICO 76,840,874 3.6
4,418,855 Western Union Co. 959802109 WU 76,622,946 3.6
4,601,845 International Game Technology 459902102 IGT 73,215,354 3.4
3,511,766 Interpublic Group of Cos., Inc. 460690100 IPG 68,514,555 3.2
1,993,396 International Speedway Corp. 460335201 ISCA 66,340,219 3.1
1,287,250 Hospira, Inc. 441060100 HSP 66,126,032 3.1
1,301,708 Meredith Corp. 589433101 MDP 62,950,599 2.9
2,260,788 First American Financial Corp. 31847R102 FAF 62,827,299 2.9
955,200 Bally Technologies, Inc. 05874B107 BYI 62,775,744 2.9
1,123,540 Royal Caribbean Cruises Ltd. V7780T103 RCL 62,468,824 2.9
561,678 Dun & Bradstreet Corp. 26483E100 DNB 61,896,916 2.9
764,340 Bristow Group Inc. 110394103 BRS 61,621,091 2.9
2,028,162 Brady Corp. 104674106 BRC 60,581,199 2.8
552,145 J.M. Smucker Co. 832696405 SJM 58,842,093 2.8
1,786,754 Newell Rubbermaid Inc. 651229106 NWL 55,371,506 2.6
527,203 Anixter Intl Inc. 035290105 AXE 52,757,204 2.5
977,926 Charles River Laboratories Intl, Inc. 159864107 CRL 52,338,599 2.5
366,304 Mohawk Industries, Inc. 608190104 MHK 50,674,495 2.4
638,860 City National Corp. 178566105 CYN 48,400,034 2.3
47,936,351 Fixed Income Clearing Corporation 85748R009   47,936,351 2.2
1,294,497 Simpson Manufacturing Co., Inc. 829073105 SSD 47,067,911 2.2
1,088,543 Contango Oil & Gas Co. 21075N204 MCF 46,056,254 2.2
343,383 Bio-Rad Laboratories, Inc. 090572207 BIO 41,106,379 1.9
335,613 Snap-on Inc. 833034101 SNA 39,776,853 1.9
658,994 U.S. Silica Holdings, Inc. 90346E103 SLCA 36,534,627 1.7
577,274 Madison Square Garden Co. 55826P100 MSG 36,050,761 1.7
43,782 Graham Holdings Co. 384637104 GHC 31,440,292 1.5
710,965 Sotheby's 835898107 BID 29,853,420 1.4
3,368,118 Symmetry Medical Inc. 871546206 SMA 29,841,525 1.4
288,300 Laboratory Corp. of America Holdings 50540R409 LH 29,521,920 1.4
311,466 Littelfuse, Inc. 537008104 LFUS 28,950,765 1.4
333,718 MTS Systems Corp. 553777103 MTSC 22,612,732 1.1
218,076 IDEX Corp. 45167R104 IEX 17,607,456 0.8
  Other Assets and Liabilities     -11,694,307 -0.5
Grand Total   $2,133,036,034 100.0%  

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 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 Fund

Sector Weightings (%)

As of June 30, 2014
  Ariel Fund Russell 2500 Value Russell 2000 Value S&P 500
Financial Services 34.63 36.36 38.40 17.38
Consumer Discretionary 32.40 11.14 11.35 13.52
Producer Durables 11.02 13.82 14.20 10.73
Health Care 10.44 5.52 4.85 13.16
Materials and Processing 3.99 7.16 5.82 3.90
Consumer Staples 2.81 1.88 2.15 8.38
Technology 2.52 8.08 9.15 16.18
Energy 2.20 6.65 6.60 10.89
Utilities 0.00 9.40 7.47 5.56



Represents percentage of total equity holdings in the portfolio



Ariel Fund

Portfolio Characteristics

As of June 30, 2014
  Market Capitalization Ariel Fund Russell 2500 Value Russell 2000 Value S&P 500
Market Capitalization (In billions)        
Large Capitalization 80.39 & Above 0 0 0 46
Medium/Large Capitalization 23.62 -- 80.39 0 0 0 32.7
Medium Capitalization 8.07 -- 23.62 26.3 4.4 0 18.7
Medium/Small Capitalization 3.24 -- 8.07 34.4 49.8 8 2.6
Small Capitalization 3.24 & Below 39.3 45.7 92 0
Dollar-Weighted Average (BIL)*   $4.16 $2.89 $1.33 $69.52
Valuation Metrics  
Forward Price/Earnings   16.3 17.2 17.8 16.6
Trailing Price/Earnings   23.6 23.5 28.2 19.1
Discount to Private Market Value   -11.6 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth **   11.5 10.1 10.5 11
Interest Coverage Ratio   7 4.2 4.3 8.6
Portfolio Construction  
Number of Holdings   38 1,686 1,321 501
Turnover   20.6 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 2500™ Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. 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.

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.