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Value Strategy
Ariel Appreciation 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 drive long-term results for our clients.

Our track record is one of the longest in the business

As a pioneer in small- and small/mid-cap value investing, we have a 37-year uninterrupted track record attributable to one portfolio manager.

Clearly defined parameters enhance our screening outcomes

We look for differentiated companies with robust, solid, enduring brands/franchises, strong cash flows, low debt, high-quality products or services, significant barriers to entry (moats) and low reinvestment requirements. We also consider environmental, social and governance (ESG) factors.

Concentrated 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 parameters, our focus is 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, ESG and moat ratings, as well as using a devil’s advocate to challenge our own investment theses.



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.

An economic moat is a perceived competitive advantage that acts as a barrier to entry for other companies in the same industry. This perceived advantage cannot protect investors from the volatility associated with stocks, incorrect assumptions or estimations, declining fundamentals or external forces.



Key Facts
Investment Style:
Mid cap, traditional value
Market Cap: Russell Midcap
Inception:
Investor Class: 12/01/1989
Institutional Class: 12/30/2011
Number of holdings: 25-45
Turnover: typically 20-30%
Ticker Symbol:
Investor Class: CAAPX
Institutional Class: CAAIX
Fund Assets (all classes):
$1.4 billion as of 6/30/2021
 
Portfolio Managers
John W. Rogers, Jr.
Co-Portfolio Manager
Fidler_Tim_Web.png Timothy Fidler, CFA®
Co-Portfolio Manager
 

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(s)



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.



Our value process


Idea Generation

Looking through a long-term lens helps identify ideas others might not consider
  • Process:
    Generate ideas from deep industry knowledge, extensive reading and computer screening
  • Risk management:
    Search 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, ESG risk analysis and independent verification
  • Risk management:
    Seek to invest in companies whose shares are trading at a 40% discount to PMV and/or 13x or less next year’s earnings
  • Benefit:
    Enables us to 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 is assigned to challenge investment theses; proprietary ESG risk ratings are designated
  • Benefit:
    Ideas vetted from multiple perspectives yield more informed final decisions by portfolio manager(s)

Portfolio Construction

Concentrated portfolios focus on our highest-conviction ideas
  • Process:
    Build concentrated 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

Sector Weightings (%)

As of June 30, 2021
  Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Financials 32.67 15.84 11.76 10.77
Consumer Discretionary 23.04 14.45 16.48 16.07
Industrials 14.85 18.05 17.69 13.83
Health Care 12.10 8.12 11.07 12.41
Consumer Staples 7.50 5.27 4.14 5.16
Utilities 3.08 7.52 4.81 2.67
Real Estate 2.05 10.64 7.87 2.58
Energy 1.49 5.32 4.29 2.92
Telecommunications 0.00 1.81 1.94 3.29
Basic Materials 0.00 4.28 3.31 1.84
Technology 0.00 8.70 16.64 28.46

Represents percentage of total equity holdings in the portfolio


Ariel Appreciation Fund

Portfolio Characteristics

As of June 30, 2021
  Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Market Capitalization (In billions)  
Large Capitalization (167.01 & Above) 0.0% 0.0% 0.0% 53.5%
Medium/Large Capitalization (43.29 -- 167.01) 14.4% 3.3% 7.8% 27.5%
Medium Capitalization (15.52 -- 43.29) 30.7% 58.0% 58.8% 16.2%
Medium/Small Capitalization (5.24 -- 15.52) 42.4% 34.7% 30.2% 2.7%
Small Capitalization (5.24 & Below) 12.5% 4.0% 3.2% 0.0%
Dollar-Weighted Average (BIL)1 25.39 20.78 23.07 541.94
Valuation Metrics2  
Forward Price/Earnings 14.3 17.1 20.3 21.3
Trailing Price/Earnings 16.4 20.2 23.9 26.9
Discount to Private Market Value -19.0 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth3 11.0 11.8 14.2 15.0
Quality Rating BBB BBB- BBB- A-
Interest Coverage Ratio4 7.9 4.7 4.5 6.9
Return on Equity5 15.8 14.0 17.8 26.9
Number of Holdings6 39 695 828 505
Benchmark Sensitive Statistics  
Turnover7 23.5 n/a n/a n/a
Active Share8 94 n/a n/a n/a
Beta vs. S&P 500 (5-year)9 1.23 1.15 1.13 1.00
Current Beta9 0.86 0.92 0.99 1.00

 

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: FactSet.
2 Price/Earnings data source: FactSet. 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: FactSet
4 This characteristic measures companies' ability to pay interest expense with current profits. Source: FactSet
5 Source: FactSet
6 Turnover is for the trailing one-year period. Source: Eagle
7 Active Share measures the degree of active management by a portfolio manager. Source: FactSet
8 5-year beta is generated internally. Source: MPI Stylus
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 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. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data shown. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this web site. The S&P 500® Index is the most widely accepted barometer of large cap U.S. equities. It includes 500 leading companies.



Investor Class
Institutional Class
Quarter End
Month End

Ariel Appreciation Fund

Investor Class | CAAPX

Performance

As of August 31, 2021
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 1.56% -1.08% 22.97% 48.88% 11.32% 11.00% 12.33% 10.78%
Russell Midcap® Value Index 2.14% 1.58% 22.77% 44.50% 11.37% 11.52% 13.26% 11.51%
Russell Midcap® Index 2.54% 4.85% 20.12% 41.24% 15.58% 15.40% 14.84% 11.87%
S&P 500® Index 3.04% 7.95% 21.58% 31.17% 18.07% 18.02% 16.34% 10.69%

Ariel Appreciation Fund

Investor Class | CAAPX

Performance

As of June 30, 2021
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 -2.54% 4.75% 21.14% 58.19% 11.49% 12.26% 10.62% 10.79%
Russell Midcap® Value Index -1.16% 5.66% 19.45% 53.06% 11.86% 11.79% 11.75% 11.48%
Russell Midcap® Index 1.47% 7.50% 16.25% 49.80% 16.45% 15.62% 13.24% 11.82%
S&P 500® Index 2.33% 8.55% 15.25% 40.79% 18.67% 17.65% 14.84% 10.56%
Expense Ratio as of the fiscal year ended 9/30/20: 1.15%

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 is often concentrated in fewer sectors than its benchmarks, and its performance may suffer if these sectors underperform the overall stock market. Investing in equity stocks is risky and subject to the volatility of the markets.

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. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data shown. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this web site. The S&P 500® Index is the most widely accepted barometer of large cap U.S. equities. It includes 500 leading companies.

Average Annual Total Return does not reflect a maximum 4.75% sales load charged prior to 07/15/94.

Click here for a fund prospectus.



Ariel Appreciation Fund

Schedule of Holdings

As of June 30, 2021
Shares Security Description Ticker Current Value ($) % of Net Assets
Top Ten Equity Holdings
1,253,020 Lazard Ltd., Class A LAZ 56,699,155 4.0
488,900 Northern Trust Corp. NTRS 56,526,618 4.0
141,900 Goldman Sachs Group, Inc. GS 53,855,307 3.8
521,900 Progressive Corp. PGR 51,255,799 3.6
591,289 BOK Financial Corp. BOKF 51,205,627 3.6
907,900 Aflac, Inc. AFL 48,717,914 3.4
175,000 Laboratory Corp. of America Holdings LH 48,273,750 3.4
1,473,430 Interpublic Group of Cos., Inc. IPG 47,871,741 3.4
900,700 Walgreens Boots Alliance, Inc. WBA 47,385,827 3.4
2,237,200 Mattel, Inc. MAT 44,967,720 3.2
605,600 The Charles Schwab Corp. SCHW 44,093,736 3.1
608,600 Stericycle, Inc. SRCL 43,545,330 3.1
692,050 First American Financial Corp. FAF 43,149,318 3.1
846,000 BorgWarner, Inc. BWA 41,064,840 2.9
1,017,900 Kennametal, Inc. KMT 36,562,968 2.6
639,415 Cardinal Health, Inc. CAH 36,504,202 2.6
1,457,824 Nielsen Holdings plc NLSN 35,964,518 2.5
605,368 KKR & Co., Inc. KKR 35,862,000 2.5
1,175,000 Axalta Coating Systems, Ltd. AXTA 35,825,750 2.5
793,122 Envista Holdings Corp. NVST 34,270,802 2.4
398,188 Madison Square Garden Entertainment Corp. MSGE 33,435,846 2.4
162,899 Stanley Black & Decker, Inc. SWK 33,392,666 2.4
255,275 J.M. Smucker Co. SJM 33,075,982 2.3
188,200 Zimmer Biomet Holdings, Inc. ZBH 30,266,324 2.1
375,700 Omnicom Group, Inc. OMC 30,052,243 2.1
338,150 CBRE Group, Inc., Class A CBRE 28,989,600 2.1
219,000 CarMax, Inc. KMX 28,283,850 2.0
826,130 nVent Electric plc NVT 25,808,301 1.8
477,400 Molson Coors Brewing Co. TAP 25,631,606 1.8
1,150,900 Knowles Corp. KN 22,718,766 1.6
100,800 Snap-on, Inc. SNA 22,521,744 1.6
58,980 Charles River Laboratories Intl, Inc. CRL 21,817,882 1.6
1,481,137 MSG Networks, Inc. MSGN 21,594,977 1.5
138,115 Keysight Technologies, Inc. KEYS 21,326,337 1.5
1,374,900 NOV, Inc. NOV 21,063,468 1.5
251,489 Houlihan Lokey, Inc. HLI 20,569,285 1.5
62,500 Vail Resorts, Inc. MTN 19,782,500 1.4
71,200 Littelfuse, Inc. LFUS 18,141,048 1.3
1,516,101 ADT, Inc. ADT 16,358,730 1.2
Total Equities   1,368,434,077 96.8  
Short Term Investments      
43,873,818 Northern Institutional Treasury Portfolio NTPXX 43,873,818 3.1
  Other Assets less Liabilities   1,458,013 0.1
Grand Total   $1,413,765,908 100.0%  




Past performance does not guarantee future results. © Ariel Investments, LLC. This website and all of its content is for informational and educational purposes only and should not be considered to be investment advice or a recommendation to buy or sell any particular security. The mutual funds offered by Ariel Investment Trust are distributed by Ariel Distributors, LLC, a wholly-owned subsidiary of Ariel Investments, LLC. Use of this website is subject to our Terms & Conditions. 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 ineligible investors, investors for whom such products, funds or services are not suitable, or investors outside the United States.

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