Value Strategy
Ariel Focus 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: All Cap
Inception:
Investor Class: 06/30/2005
Institutional Class: 12/30/2011
Number of holdings: 20-30
Turnover: 25-40%
Ticker Symbol:
Investor Class: ARFFX
Institutional Class: AFOYX
Fund Assets (all classes):
$61.0 million as of 6/30/2015
 
Portfolio Manager
Bobrinskoy_Charlie_Web.png Charles K. Bobrinskoy
Portfolio Manager
 
Fund Spotlight
On June 24th, Ariel Investments Portfolio Manager Charlie Bobrinskoy answered your questions via live chat. Read the replay here.
 

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.


 
CB-Quality-Buffet-Way.png
Charlie Bobrinskoy on
High Quality Value Investing
You may also be interested in
Strong financial results do not have to come at the expense of social integrity.
 
Investor Class
Institutional Class
Quarter End
Month End
Ariel Focus Fund

Performance

As of June 30, 2015
Inception date: June 30, 2005 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Focus Fund -2.15% -0.80% -2.98% -0.48% 16.18% 14.15% 5.68% 5.68%
Russell 1000® Value Index -2.00% 0.11% -0.61% 4.13% 17.34% 16.50% 7.05% 7.05%
S&P 500® Index -1.94% 0.28% 1.23% 7.42% 17.31% 17.34% 7.89% 7.89%
Ariel Focus Fund

Performance

As of June 30, 2015
Inception date: June 30, 2005 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Focus Fund -2.15% -0.80% -2.98% -0.48% 16.18% 14.15% 5.68% 5.68%
Russell 1000® Value Index -2.00% 0.11% -0.61% 4.13% 17.34% 16.50% 7.05% 7.05%
S&P 500® Index -1.94% 0.28% 1.23% 7.42% 17.31% 17.34% 7.89% 7.89%
Expense Cap as of 2/1/14: 1.00%*
Net Expense Ratio as of the fiscal year ended 9/30/14: 1.08%
Gross Expense Ratio as of the fiscal year ended 9/30/14: 1.40%

*Effective February 1, 2014, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees or reimburse expenses (the "Expense Cap") in order to limit Ariel Focus Fund's total annual operating expenses to 1.00% of net assets for the Investor Class through the end of the fiscal year ending September 30, 2016. The Expense Cap prior to February 1, 2014 was 1.25% for the Investor Class.

Ariel Focus Fund is a non-diversified fund and therefore may be subject to greater volatility than a more diversified investment. Investing in equity stocks is risky and subject to the volatility of the markets. 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. 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 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected 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.

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 Focus Fund

Schedule of Holdings

As of June 30, 2015
Shares Security Description CUSIP Ticker Current Value ($) % of
Net
Assets
Top Ten Equity Holdings
33,400 Stanley Black & Decker, Inc. 854502101 SWK 3,515,016 5.8
160,000 Western Union Co. 959802109 WU 3,252,800 5.3
74,400 Oracle Corp. 68389X105 ORCL 2,998,320 4.9
18,100 International Business Machines Corp. 459200101 IBM 2,944,146 4.8
27,600 CVS Health Corp. 126650100 CVS 2,894,688 4.8
15,400 Lockheed Martin Corp. 539830109 LMT 2,862,860 4.7
56,100 National Oilwell Varco 637071101 NOV 2,708,508 4.4
53,800 Mosaic Co. 61945C103 MOS 2,520,530 4.1
61,000 Newell Rubbermaid Inc. 651229106 NWL 2,507,710 4.1
11,300 Goldman Sachs Group, Inc. 38141G104 GS 2,359,327 3.9
28,200 Exxon Mobil Corp. 30231G102 XOM 2,346,240 3.9
18,800 Laboratory Corp. of America Holdings 50540R409 LH 2,278,936 3.7
32,200 Bed Bath & Beyond Inc. 075896100 BBBY 2,221,156 3.6
21,900 Johnson & Johnson 478160104 JNJ 2,134,374 3.5
60,400 Kennametal Inc. 489170100 KMT 2,060,848 3.4
53,050 Morgan Stanley 617446448 MS 2,057,810 3.4
18,500 Zimmer Biomet Holdings, Inc. 98956P102 ZBH 2,020,755 3.3
27,100 JPMorgan Chase & Co. 46625H100 JPM 1,836,296 3.0
141,800 Pier 1 Imports, Inc. 720279108 PIR 1,790,934 2.9
72,300 Hanger, Inc. 41043F208 HGR 1,694,712 2.8
153,682 Barrick Gold Corp. 067901108 ABX 1,638,250 2.7
38,200 Bank of New York Mellon Corp. 064058100 BK 1,603,254 2.6
35,200 Microsoft Corp. 594918104 MSFT 1,554,080 2.6
21,200 Baxter International Inc. 071813109 BAX 1,482,516 2.4
20,400 Apache Corp. 037411105 APA 1,175,652 1.9
17,200 Anixter Intl Inc. 035290105 AXE 1,120,580 1.9
96,000 Chesapeake Energy Corp. 165167107 CHK 1,072,320 1.8
12,600 St. Jude Medical, Inc. 790849103 STJ 920,682 1.5
5,000 Bio-Rad Laboratories, Inc. 090572207 BIO 753,050 1.2
38,500 Apollo Education Group, Inc. 037604105 APOL 495,880 0.8
121,359 Fixed Income Clearing Corporation     121,359 0.2
  Other Assets and Liabilities     87,197 0.1
Grand Total   $61,030,786 100.0%  

Ariel Focus Fund

Sector Weightings (%)

As of June 30, 2015
  Ariel Focus Fund Russell 1000 Value S&P 500
Health Care 18.55 11.83 15.38
Financial Services 18.27 29.81 18.29
Technology 14.17 10.54 16.91
Producer Durables 13.87 9.83 10.34
Energy 12.01 14.30 7.88
Consumer Discretionary 11.53 6.59 14.27
Materials and Processing 6.84 3.49 3.47
Consumer Staples 4.76 5.53 8.34
Utilities 0.00 8.07 5.11

Represents percentage of total equity holdings in the portfolio


Ariel Focus Fund

Portfolio Characteristics

As of June 30, 2015
  Ariel Focus Fund Russell 1000 Value S&P 500
Market Capitalization (In billions)  
Large Capitalization (93.08 & Above) 27.5% 39.3% 46.0%
Medium/Large Capitalization (25.49 - 93.08) 17.0% 28.4% 33.0%
Medium Capitalization (8.79 - 25.49) 40.7% 19.0% 18.3%
Medium/Small Capitalization (3.38 - 8.79) 3.0% 11.3% 2.7%
Small Capitalization (3.38 & Below) 11.8% 1.9% 0.0%
Dollar-Weighted Average (BIL)1 $28.81 $51.35 $73.61
Valuation Metrics2  
Forward Price/Earnings 15.1 16.0 17.2
Trailing Price/Earnings 17.6 18.3 20.0
Discount to Private Market Value -17.7 n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth3 6.8 7.9 10.4
Interest Coverage Ratio4 13.3 6.7 9.2
Return on Equity5 15.0 13.3 18.7
Portfolio Construction  
Number of Holdings5 30 684 501
Turnover6 20.6 n/a n/a
Benchmark Sensitive Statistics  
Active Share7 85.97 n/a n/a
Beta vs. S&P 500 (5-year)8 1.13 1.02 1.00
Current Beta9 0.98 n/a n/a

 

1 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. Source of Market Capitalization data: BNY Mellon.
2 Price/Earnings data source: BNY Mellon. Discount to Private Market Value ("PMV") represents the percentage discount at which the portfolio traded as compared to the portfolio holdings' PMV as determined by Ariel Investments.
3 This indicates the consensus outlook for a portfolio's EPS growth. I/B/E/S provides medians of research analysts' estimates for companies' long-term growth rates. Only stocks with at least three estimates in the I/B/E/S database are included; medians are less useful with fewer estimates, and research coverage may be less current. This measure is not a forecast of the Fund's performance. Source: BNY Mellon
4 This characteristic measures companies' ability to pay interest expense with current profits. Source: BNY Mellon
5 Source: BNY Mellon
6 Turnover is for the trailing 1 year period and is generated internally. Source: Fiserv APL
7 Active Share measures the degree of active management by a portfolio manager. Source: FactSet
8 5-year beta is generated internally. Source: Zephyr Style Advisor
9 Current beta (1-year trailing) is generated internally through FactSet and is based on daily security returns.

See the Glossary for definitions of terms not defined above.

The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected 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.

Ariel Focus 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

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

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. The Ariel mutual funds 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.