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Value Strategy
Ariel Appreciation Fund

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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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):
$2.0 billion as of 03/31/2014
 
Portfolio Managers
John W. Rogers, Jr.
Co-Portfolio Manager
Fidler_Tim_Web.png Timothy Fidler, CFA ®
Co-Portfolio Manager
 
Ariel Appreciation Fund

Sector Weightings (%)

As of March 31, 2014
  Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Financial Services 36.98 32.57 21.39 17.85
Consumer Discretionary 29.52 9.39 18.18 13.81
Health Care 15.08 8.08 10.63 13.20
Producer Durables 14.03 12.29 13.11 10.98
Consumer Staples 2.98 2.90 5.53 8.49
Energy 1.41 6.96 6.66 10.18
Utilities 0.00 12.77 6.47 5.52
Materials and Processing 0.00 5.81 6.65 3.93
Technology 0.00 9.24 11.38 16.04



Represents percentage of total equity holdings in the portfolio



Ariel Appreciation Fund

Portfolio Characteristics

As of March 31, 2014
  Market Capitalization Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Market Capitalization (In billions)        
Large Capitalization 76.77 & Above 0.0 0.0 0.0 46.8
Medium/Large Capitalization 23.15 -- 76.77 16.8 7.8 7.7 32.2
Medium Capitalization 7.83 -- 23.15 39.2 52.0 57.4 18.5
Medium/Small Capitalization 3.06 -- 7.83 28.7 34.8 31.4 2.6
Small Capitalization 3.06 & Below 15.3 5.4 3.4 0.0
Dollar-Weighted Average (BIL)*   $9.20 $9.23 $10.05 $67.79
Valuation Metrics  
Forward Price/Earnings   15.6 16.7 18.2 16.0
Trailing Price/Earnings   18.5 21.4 24.0 18.6
Discount to Private Market Value   -12.0 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth **   10.4 9.9 12.4 11.1
Interest Coverage Ratio   7.5 4.1 5.4 8.5
Portfolio Construction  
Number of Holdings   40 535 820 500
Turnover   24.8 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.

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

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

Schedule of Holdings

As of March 31, 2014
Shares Security Description CUSIP Ticker Current Value ($) % of
Net
Assets
Top Ten Equity Holdings
1,949,520 Lazard Ltd G54050102 LAZ 91,802,897 4.5
5,448,000 Western Union Co. 959802109 WU 89,129,280 4.4
3,081,600 First American Financial Corp. 31847R102 FAF 81,816,480 4.0
77,053,212 Fixed Income Clearing Corporation 85748R009   77,053,212 3.8
881,699 Stanley Black & Decker, Inc. 854502101 SWK 71,629,227 3.5
939,018 Bristow Group Inc. 110394103 BRS 70,914,639 3.5
3,980,830 Interpublic Group of Cos., Inc. 460690100 IPG 68,231,426 3.3
1,025,500 Northern Trust Corp. 665859104 NTRS 67,231,780 3.3
4,651,890 International Game Technology 459902102 IGT 65,405,573 3.2
1,506,300 Hospira, Inc. 441060100 HSP 65,147,475 3.2
1,007,000 AFLAC Inc. 001055102 AFL 63,481,280 3.1
960,500 St. Jude Medical, Inc. 790849103 STJ 62,807,095 3.1
1,155,700 Franklin Resources, Inc. 354613101 BEN 62,615,826 3.1
521,800 Jones Lang LaSalle Inc. 48020Q107 JLL 61,833,300 3.0
990,000 Nordstrom, Inc. 655664100 JWN 61,825,500 3.0
735,250 Illinois Tool Works Inc. 452308109 ITW 59,797,883 2.9
609,275 J.M. Smucker Co. 832696405 SJM 59,245,901 2.9
802,600 Omnicom Group Inc. 681919106 OMC 58,268,760 2.9
593,900 Zimmer Holdings, Inc. 98956P102 ZMH 56,171,062 2.7
872,600 CBS Corp. 124857202 CBS 53,926,680 2.6
1,577,656 International Speedway Corp. 460335201 ISCA 53,624,527 2.6
670,100 City National Corp. 178566105 CYN 52,750,272 2.6
1,010,000 Coach, Inc. 189754104 COH 50,156,600 2.5
558,800 Viacom, Inc. 92553P201 VIAB 47,492,412 2.3
385,554 Thermo Fisher Scientific Inc. 883556102 TMO 46,359,013 2.3
392,100 Snap-on Inc. 833034101 SNA 44,495,508 2.2
1,280,600 Blackstone Group L.P. 09253U108 BX 42,579,950 2.1
1,428,300 Gannett Co., Inc. 364730101 GCI 39,421,080 1.9
399,700 Laboratory Corp. of America Holdings 50540R409 LH 39,254,537 1.9
3,480,675 Janus Capital Group Inc. 47102X105 JNS 37,834,937 1.9
1,460,568 KKR & Co. L.P. 48248M102 KKR 33,359,373 1.6
277,500 Towers Watson 891894107 TW 31,648,875 1.5
231,225 Bio-Rad Laboratories, Inc. 090572207 BIO 29,624,547 1.4
988,700 Newell Rubbermaid Inc. 651229106 NWL 29,562,130 1.4
586,482 Contango Oil & Gas Co. 21075N204 MCF 27,998,651 1.4
311,500 T. Rowe Price Group, Inc. 74144T108 TROW 25,652,025 1.3
871,050 CBRE Group, Inc. 12504L109 CBG 23,892,902 1.2
457,400 Sotheby's 835898107 BID 19,919,770 1.0
304,800 Madison Square Garden Co. 55826P100 MSG 17,306,544 0.8
112,800 Tiffany & Co. 886547108 TIF 9,717,720 0.5
262,635 DeVry Education Group Inc. 251893103 DV 11,133,098 0.5
  Other Assets and Liabilities     -17,444,819 -0.9
Grand Total   $2,044,674,928 100.0%  

Investor Class
Institutional Class
Quarter End
Month End
Ariel Appreciation Fund

Performance

As of March 31, 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 -1.06% -0.95% -0.95% 25.33% 14.38% 28.77% 8.55% 11.37%
Russell Midcap® Value Index 1.54% 5.22% 5.22% 22.95% 15.17% 26.35% 10.24% 11.98%
Russell Midcap® Index -0.27% 3.53% 3.53% 23.51% 14.39% 25.55% 10.05% 11.66%
S&P 500® Index 0.84% 1.81% 1.81% 21.86% 14.66% 21.16% 7.42% 9.45%
Ariel Appreciation Fund

Performance

As of March 31, 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 -1.06% -0.95% -0.95% 25.33% 14.38% 28.77% 8.55% 11.37%
Russell Midcap® Value Index 1.54% 5.22% 5.22% 22.95% 15.17% 26.35% 10.24% 11.98%
Russell Midcap® Index -0.27% 3.53% 3.53% 23.51% 14.39% 25.55% 10.05% 11.66%
S&P 500® Index 0.84% 1.81% 1.81% 21.86% 14.66% 21.16% 7.42% 9.45%
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.

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.