Global Strategy
Ariel International (DM)

Why Ariel’s global approach


Our emphasis is on generating attractive absolute and relative returns while seeking to limit downside risk in our global portfolios.

Experience matters

Rupal J. Bhansali, our chief investment officer for international equities, has more than 20 years of industry experience.

Managing risk is a top priority

We pay as much attention to risk management as to return management.

Screening out provides a stronger starting point

While others screen in, we begin our process by screening out high-risk companies.

All-cap portfolios offer larger opportunity set

Although our portfolios are relatively concentrated, we consider companies of all sizes.

Attention to business models builds more resilient portfolios

In addition to applying our financial models, we consider the long-term viability of each company’s business model.

Facts
Market Cap Range: All Cap
Inception: December 31, 2011
Number of companies: 50-150
Turnover: 30-80%
Net Assets: $402.2 million as of 09/30/2014
 
Portfolio Manager
Bhansali_Rupal_Web.png Rupal J. Bhansali
Portfolio Manager
 

Our global investment philosophy


Patience

We take the long-term view.
  • Complementary objectives: Higher absolute and relative returns over a full market cycle with less risk
  • Focus research as much on what can go wrong as what can go right

Independence

We invest to our convictions, not to benchmarks.
  • Benchmark aware only to the extent that tracking error is by design and not by default
  • Significant exposure to our highest-conviction ideas, tempered with prudent risk controls

Expertise

We specialize in bottom-up fundamental research.
  • Ask questions to gain insight, not just information
  • Conduct in-country visits
  • Take business analyst approach rather than stock analyst approach
  • Research a company’s global peers to inform our competitive assessment

Teamwork

We work collaboratively with a shared commitment to excellence.
  • Debate best, base and worst case scenarios for every company considered
  • Three team members with clearly defined roles vet each stock

 
RB-Int-Global-Investing1.png
Rupal Bhansali on International and Global Investing I
 
RB-Int-Global-Investing2.png
Rupal Bhansali on International and Global Investing II
Ariel International (DM)

Schedule of Holdings

As of September 30, 2014
  Units Security Description Market Value % of Total Value
AUSTRALIA     29,497 0.1
  6,170 AMP Ltd. 29,497 0.1
AUSTRIA     356,240 0.6
  7,885 Vienna Insurance Group 356,240 0.6
CANADA     666,122 1.2
  26,205 Canadian Oil Sands Ltd. 484,648 0.9
  404 Fairfax Financial Holdings Ltd. 181,474 0.3
CHINA     159,526 0.3
  731 Baidu, Inc. ADR 159,526 0.3
DENMARK     44,850 0.1
  1,147 Vestas Wind Systems AS 44,850 0.1
FINLAND     2,455,562 4.3
  283,189 Nokia Corp. 2,417,162 4.3
  847 Nokian Renkaat Corp. 25,558 0.0
  1,518 Nokia Corp. ADR 12,842 0.0
FRANCE     4,065,363 7.4
  39,267 Eutelsat Communications 1,268,462 2.3
  14,504 Technip SA 1,220,763 2.2
  13,210 BNP Paribas SA 876,661 1.6
  3,483 L'Air Liquide SA 425,011 0.8
  2,364 Michelin (CGDE) 223,077 0.4
  3,808 Societe Television Francaise 1 51,389 0.1
GERMANY     5,800,051 10.3
  36,984 Deutsche Boerse AG 2,492,237 4.4
  317,900 Telefonica Deutschland GmbH & Co. 1,663,010 3.0
  47,857 Dialog Semiconductor plc 1,345,184 2.4
  1,725 MTU Aero Engines AG 147,346 0.3
  3,885 Deutsche Post AG 124,640 0.2
  383 SAP America, Inc. 27,634 0.0
HONG KONG     2,787,189 4.9
  40,601 China Mobile Ltd. ADR 2,385,309 4.2
  132,500 Yue Yuen Industrial Holdings Ltd. 401,880 0.7
IRELAND     1,529,930 2.7
  27,112 Ryanair Holdings plc ADR 1,529,930 2.7
ITALY     2,501,567 4.5
  334,609 Snam SpA 1,851,892 3.3
  126,270 Mediaset SpA 485,040 0.9
  4,384 DiaSorin SpA 164,635 0.3
JAPAN     9,758,180 17.5
  52,800 Canon Inc. 1,718,684 3.1
  25,900 Toyota Motor Corp. 1,526,043 2.7
  16,000 Shimamura Co., Ltd. 1,470,325 2.6
  11,500 Nintendo Co., Ltd. 1,250,752 2.2
  10,300 Daito Trust Construction Co., Ltd. 1,216,487 2.2
  12,600 Tokyo Electron Ltd. 822,234 1.5
  17,200 Japan Tobacco Inc. 559,325 1.0
  24,300 Nikon Corp. 351,130 0.6
  6,900 Denso Corp. 317,983 0.6
  8,800 OBIC Co., Ltd. 314,486 0.6
  1,793 Toyota Motor Corp. ADR 210,731 0.4
LUXEMBOURG     294,235 0.5
  3,436 RTL Group 294,235 0.5
NETHERLANDS     4,562,689 8.1
  155,261 Ahold N.V. 2,515,095 4.5
  12,129 Royal Dutch Shell plc ADR 923,381 1.6
  22,183 Royal Dutch Shell plc 848,502 1.5
  1,375 Core Laboratories N.V. 201,231 0.4
  811 Gemalto N.V. 74,480 0.1
PORTUGAL     83,016 0.1
  7,536 Jeronimo Martins SGPS SA 83,016 0.1
SINGAPORE     158,145 0.3
  9,000 United Overseas Bank Ltd. 158,145 0.3
SPAIN     499,535 0.8
  7,129 Tecnicas Reunidas SA 378,250 0.7
  19,758 Banco Popular EspaƱol SA 121,010 0.1
  19,758 Banco Popular Espanol SA 275 0.0
SWEDEN     391,761 0.6
  6,933 H&M Hennes & Mauritz AB 288,075 0.5
  1,128 Autoliv Inc. 103,686 0.1
SWITZERLAND     7,501,336 13.4
  10,204 Roche Holding AG 3,023,795 5.4
  18,020 Nestle SA 1,325,083 2.4
  3,781 Zurich Insurance Group Ltd 1,127,168 2.0
  1,664 Swisscom AG 944,920 1.7
  42,014 UBS AG 732,674 1.3
  494 Banque Cantonale Vaudoise 264,752 0.5
  40 SGS SA 82,944 0.1
UNITED KINGDOM     7,043,262 12.2
  38,548 GlaxoSmithKline plc ADR 1,772,052 3.1
  141,401 HSBC Holdings plc 1,435,796 2.5
  405,595 Tesco plc 1,224,810 2.2
  44,858 GlaxoSmithKline plc 1,027,966 1.8
  107,407 British Telecom Group plc 661,234 1.2
  8,985 Croda Intl plc 299,160 0.5
  1,318 British American Tobacco plc ADR 149,039 0.3
  13,549 IG Group Holdings plc 130,634 0.2
  19,174 Sage Group plc 113,626 0.2
  1,338 Reckitt Benckiser Group PLC 116,093 0.1
  2,218 HSBC Holdings plc ADR 112,852 0.1
UNITED STATES     3,978,678 7.0
  34,136 Vanguard MSCI EAFE ETF 1,356,906 2.4
  5,265 Harman Intl Industries, Inc. 516,181 0.9
  7,345 Vanguard MSCI Pacific ETF 435,559 0.8
  21,368 Tumi Holdings Inc. 434,839 0.8
  7,363 Vanguard MSCI Europe ETF 406,585 0.7
  8,245 Coach, Inc. 293,604 0.5
  3,452 Philip Morris Intl, Inc. 287,897 0.5
  18,496 Ruckus Wireless, Inc. 247,107 0.4
Total Equities     54,666,734 96.9
Banco Popular Espanol SA     275 0.0
Grand Total     54,667,009 96.9

Ariel International (DM)

Commentary

 
Monthly Commentary: Perspectives on the current market
Quarterly Commentary: Quarterly performance update and communication to investors
Turtle Thoughts: A compilation of our portfolio manager letters
Fact Sheets: Quarterly product overview
Ariel International (DM) (Representative Portfolio)

Sector Weightings (%)

As of September 30, 2014
  Ariel International (DM) MSCI EAFE
Financials 17.60 25.70
Information Technology 16.21 4.67
Consumer Discretionary 15.75 11.62
Consumer Staples 11.93 10.92
Health Care 11.41 11.24
Telecommunication Services 10.78 4.93
Energy 7.73 6.86
Industrials 3.68 12.50
Utilities 3.53 3.88
Materials 1.38 7.68
Unclassified 0.00 0.00

Represents percentage of total equity holdings in the representative portfolio

MSCI EAFE® Index is an unmanaged, market-weighted index of companies in developed markets, excluding the U.S. and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.

These sectors are the Global Industry Classification Standard (“GICS”). GICS was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by Ariel Investments, LLC. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Our global process


Negative Screening

Negative screening strives for downside protection
  • Process:
    Screen on risk, not growth rate or valuation
  • Risk management:
    Eliminate approximately 60% of high-risk stocks in benchmark
  • Benefit:
    Potential downside protection

Bottom-up Research

Proprietary bottom-up research enables better stock picking
  • Process:
    Lead analysts perform research
  • Risk management:
    Assess the prospects and durability of a business franchise
  • Benefit:
    Proprietary insights enable better stock picking

Team Validation

Team validation avoids blind spots in our analysis
  • Process:
    A team of three debates and stress tests each idea
  • Risk management:
    Go beyond industry specialist, avoiding groupthink by assigning devil’s advocate and "fresh" analyst
  • Benefit:
    Ideas vetted from multiple perspectives yield more informed final decisions by portfolio manager

Portfolio Construction

Portfolios constructed to manage risks as well as long-term performance
  • Process:
    Seek to own top decile of investment opportunities uncovered
  • Risk management:
    Cap security position size at 5% at cost, typically limit sector weights at the higher of 25% or 1.5x benchmark, hedge currency if practical and cost efficient
  • Benefit:
    A diverse portfolio that balances long-term performance with risk management

Quarter End
Month End
Ariel International (DM) Composite

Performance

As of October 31, 2014
Inception date: December 31, 2011 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Since
Inception
Gross of Fees -0.78% -4.39% -0.39% 1.03% 11.68%
Net of Fees -0.85% -4.58% -1.05% 0.21% 10.72%
MSCI EAFE -1.45% -5.34% -2.42% -0.17% 13.13%
Ariel International (DM) Composite

Performance

As of September 30, 2014
Inception date: December 31, 2011 Annualized
  One
Month
Three
Months
Year To
Date
One
Year
Since
Inception
Gross of Fees -4.21% -6.10% 0.39% 5.61% 12.38%
Net of Fees -4.27% -6.29% -0.20% 4.75% 11.40%
MSCI EAFE -3.81% -5.83% -0.99% 4.70% 14.16%


Ariel Investments, LLC is a money management firm headquartered in Chicago, Illinois. Taking a long-term view and applying independent thinking to our investment decisions, we span the market cap spectrum from micro to large and cover the globe with our international and global offerings. Ariel claims compliance with the Global Investment Performance Standards (GIPS®). The Ariel International (DM) strategy seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers in developed international market countries. The Ariel International Composite (DM) differs from its benchmark, the MSCI EAFE® Index, with fewer holdings. Index returns reflect the reinvestment of income and other earnings. Indexes are unmanaged, and investors cannot invest directly in an index. Equity investments in foreign securities may be made in various forms, such as common stocks, preferred stocks, warrants, rights, convertible securities purchased on recognized foreign exchanges and developed over-the-counter markets, or in the form of depositary receipts such as American Depositary Receipts (ADRs) or Global Depositary Receipts (GDRs), or other securities representing underlying shares of foreign issues, including certificates of deposit issued by foreign banks and foreign branches of U.S. banks. The strategy may invest in large, medium, or small companies without regard to market capitalization. The strategy may use various techniques to hedge currency exposure, including derivatives, exchange-traded funds (ETFs), and other hedges. These techniques may include the following: buying and selling currency on a spot basis, entering into foreign currency forward contracts, buying and selling foreign currency options and securities, securities index options, futures contracts and related options, and entering into swap agreements. These techniques may be used for hedging purposes or to increase return through the use of derivatives as a substitute for securities or to reduce the risk of loss of certain holdings. The strategy may include the holding of cash or cash equivalents for defensive purposes. Cash equivalents are negotiable instruments, such as commercial paper, treasury bills, short-term government bonds, payable by third parties. Third parties may include foreign banks and foreign governments.

Performance results are net of transaction costs and reflect the reinvestment of dividends and other earnings. Net returns reflect the deduction of the maximum advisory fee in effect for the respective period. Effective 1/1/14 the maximum fee is 0.80% per annum. Fees for prior periods are available upon request. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. Fee information is available upon request and may also be found in Ariel’s Form ADV, Part 2. Results shown may be preliminary. Returns are calculated in U.S. dollars. The Ariel International (DM) Composite has been examined for the period from January 1, 2012 through December 31, 2013. A copy of the examination report is available upon request. Past performance does not guarantee future results. Investments in foreign securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving foreign economies and markets, foreign political systems, foreign regulatory standards, foreign currencies and taxes. The use of currency derivatives, ETFs, and other hedges may increase investment losses and expenses and create more volatility. Investments in emerging and developing markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price. The intrinsic value of the stocks in which the portfolio invests may never be recognized by the broader market. Click here to obtain a complete list of composite descriptions or a presentation that adheres to the GIPS standards.

MSCI EAFE® Index is an unmanaged, market-weighted index of companies in developed markets, excluding the U.S. and Canada. The MSCI EAFE Index (gross) returns reflect the reinvestment of income and other earnings, including the maximum possible dividends. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.

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.