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Value Strategy
Ariel Focus 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.

 
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Charlie Bobrinskoy on
High Quality Value Investing
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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: 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):
$62.8 million as of 03/31/2014
 
Portfolio Manager
Bobrinskoy_Charlie_Web.png Charles K. Bobrinskoy
Portfolio Manager
 
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

Ariel Focus Fund

Schedule of Holdings

As of March 31, 2014
Shares Security Description CUSIP Ticker Current Value ($) % of
Net
Assets
Top Ten Equity Holdings
17,200 International Business Machines Corp. 459200101 IBM 3,310,828 5.3
80,700 Microsoft Corp. 594918104 MSFT 3,307,893 5.3
20,100 Lockheed Martin Corp. 539830109 LMT 3,281,124 5.2
40,000 National Oilwell Varco 637071101 NOV 3,114,800 5.0
185,300 Western Union Co. 959802109 WU 3,031,508 4.8
39,600 DIRECTV 25490A309 DTV 3,026,232 4.8
35,400 Stanley Black & Decker, Inc. 854502101 SWK 2,875,896 4.6
27,700 Exxon Mobil Corp. 30231G102 XOM 2,705,736 4.3
33,600 CVS Caremark Corp. 126650100 CVS 2,515,296 4.0
23,700 Johnson & Johnson 478160104 JNJ 2,328,051 3.7
37,600 Target Corp. 87612E106 TGT 2,275,176 3.6
20,500 Laboratory Corp. of America Holdings 50540R409 LH 2,013,305 3.2
76,500 Chesapeake Energy Corp. 165167107 CHK 1,959,930 3.1
39,100 Mosaic Co. 61945C103 MOS 1,955,000 3.1
47,200 Oracle Corp. 68389X105 ORCL 1,930,952 3.1
19,500 Zimmer Holdings, Inc. 98956P102 ZMH 1,844,310 2.9
21,500 Apache Corp. 037411105 APA 1,783,425 2.9
29,000 JPMorgan Chase & Co. 46625H100 JPM 1,760,590 2.8
56,250 Morgan Stanley 617446448 MS 1,753,313 2.8
1,718,349 Fixed Income Clearing Corporation 85748R009   1,718,349 2.7
116,100 International Game Technology 459902102 IGT 1,632,366 2.6
9,800 Goldman Sachs Group, Inc. 38141G104 GS 1,605,730 2.6
35,400 Hospira, Inc. 441060100 HSP 1,531,050 2.4
20,400 Baxter Intl Inc. 071813109 BAX 1,501,032 2.4
16,800 Illinois Tool Works Inc. 452308109 ITW 1,366,344 2.2
38,500 Apollo Education Group, Inc. 037604105 APOL 1,318,240 2.1
37,200 Bank of New York Mellon Corp. 064058100 BK 1,312,788 2.1
11,100 Snap-on Inc. 833034101 SNA 1,259,628 2.0
17,300 Omnicom Group Inc. 681919106 OMC 1,255,980 2.0
38,900 Telephone & Data Systems Inc. 879433829 TDS 1,019,569 1.6
  Other Assets and Liabilities     503,447 0.8
Grand Total   $62,797,888 100.0%  

Investor Class
Institutional Class
Quarter End
Month End
Ariel Focus Fund

Performance

As of March 31, 2014
Inception date: June 30, 2005 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Since
Inception
Ariel Focus Fund 1.61% 2.11% 2.11% 24.86% 12.87% 21.34% 5.99%
Russell 1000® Value Index 2.39% 3.02% 3.02% 21.57% 14.80% 21.75% 6.98%
S&P 500® Index 0.84% 1.81% 1.81% 21.86% 14.66% 21.16% 7.55%
Ariel Focus Fund

Performance

As of March 31, 2014
Inception date: June 30, 2005 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Three
Years
Five
Years
Since
Inception
Ariel Focus Fund 1.61% 2.11% 2.11% 24.86% 12.87% 21.34% 5.99%
Russell 1000® Value Index 2.39% 3.02% 3.02% 21.57% 14.80% 21.75% 6.98%
S&P 500® Index 0.84% 1.81% 1.81% 21.86% 14.66% 21.16% 7.55%
Net Expense Ratio as of the fiscal year ended 9/30/13: 1.25%*
Gross Expense Ratio as of the fiscal year ended 9/30/13: 1.54%*

*Effective February 1, 2014, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees and 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. Through January 31, 2014, the Expense Cap will continue to be 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

Sector Weightings (%)

As of March 31, 2014
  Ariel Focus Fund Russell 1000 Value S&P 500
Energy 15.79 14.47 10.18
Consumer Discretionary 15.70 6.94 13.81
Financial Services 15.62 29.30 17.85
Health Care 15.22 13.35 13.20
Producer Durables 14.50 10.39 10.98
Technology 14.11 8.48 16.04
Consumer Staples 4.15 5.40 8.49
Materials and Processing 3.23 3.07 3.93
Utilities 1.68 8.60 5.52



Represents percentage of total equity holdings in the portfolio



Ariel Focus Fund

Portfolio Characteristics

As of March 31, 2014
  Market Capitalization Ariel Focus Fund Russell 1000 Value S&P 500
Market Capitalization (In billions)      
Large Capitalization 76.77 & Above 29.5 41.6 46.8
Medium/Large Capitalization 23.15 -- 76.77 34.7 29.3 32.2
Medium Capitalization 7.83 -- 23.15 24.7 17.1 18.5
Medium/Small Capitalization 3.06 -- 7.83 9.5 10.4 2.6
Small Capitalization 3.06 & Below 1.7 1.6 0.0
Dollar-Weighted Average (BIL)*   $41.42 $51.86 $67.79
Valuation Metrics  
Forward Price/Earnings   13.8 14.6 16.0
Trailing Price/Earnings   16.9 17.0 18.6
Discount to Private Market Value   -14.2 n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth **   9.2 9.3 11.1
Interest Coverage Ratio   7.5 5.9 8.5
Portfolio Construction  
Number of Holdings   29 664 500
Turnover   44.8 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 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.

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.