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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 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):
$1.6 billion as of 6/30/2018
 
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



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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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


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Ariel Appreciation Fund

Sector Weightings (%)

As of June 30, 2018
  Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Financial Services 28.33 33.26 26.48 19.63
Consumer Discretionary 26.75 12.21 14.89 14.25
Producer Durables 19.24 10.55 12.52 10.03
Health Care 15.67 6.38 9.21 13.66
Consumer Staples 4.07 4.95 4.37 6.14
Energy 2.13 7.91 5.46 6.34
Materials and Processing 1.91 7.27 6.57 2.77
Technology 0.70 6.86 14.04 22.24
Utilities 0.00 10.60 6.47 4.94

Represents percentage of total equity holdings in the portfolio


Ariel Appreciation Fund

Portfolio Characteristics

As of June 30, 2018
  Ariel Appreciation Fund Russell Midcap Value Russell Midcap S&P 500
Market Capitalization (In billions)  
Large Capitalization (106.93 & Above) 0.0% 0.0% 0.0% 49.5%
Medium/Large Capitalization (29.50 -- 106.93) 11.0% 2.9% 4.7% 31.0%
Medium Capitalization (10.41 -- 29.50) 40.6% 58.8% 59.6% 17.0%
Medium/Small Capitalization (3.84 -- 10.41) 30.8% 34.6% 32.9% 2.6%
Small Capitalization (3.84 & Below) 16.4% 3.7% 2.8% 0.0%
Dollar-Weighted Average (BIL)1 10.00 12.10 12.58 102.91
Valuation Metrics2  
Forward Price/Earnings 13.0 15.4 17.2 17.2
Trailing Price/Earnings 16.7 21.4 24.9 24.0
Discount to Private Market Value -23.2 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth3 12.3 11.1 13.6 14.0
Interest Coverage Ratio4 7.7 4.2 5.0 7.2
Return on Equity5 16.8 11.1 14.1 17.0
Portfolio Construction  
Number of Holdings5 42 596 793 505
Turnover5 12.5 n/a n/a n/a
Benchmark Sensitive Statistics  
Active Share 94.32 n/a n/a n/a
Beta vs. S&P 500 (5-year)6 1.22 0.93 0.98 1.00
Current Beta7 0.84 n/a 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 Active Share measures the degree of active management by a portfolio manager. Source: FactSet
7 5-year beta is generated internally. Source: Zephyr Style Advisor
8 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 June 30, 2018
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 1.52% 1.05% 0.59% 7.05% 5.71% 9.91% 10.87% 10.72%
Russell Midcap® Value Index 0.81% 2.41% -0.16% 7.60% 8.80% 11.27% 10.06% 11.44%
Russell Midcap® Index 0.69% 2.82% 2.35% 12.33% 9.58% 12.22% 10.23% 11.35%
S&P 500® Index 0.62% 3.43% 2.65% 14.37% 11.93% 13.42% 10.17% 9.74%

Ariel Appreciation Fund

Investor Class | CAAPX

Performance

As of June 30, 2018
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 1.52% 1.05% 0.59% 7.05% 5.71% 9.91% 10.87% 10.72%
Russell Midcap® Value Index 0.81% 2.41% -0.16% 7.60% 8.80% 11.27% 10.06% 11.44%
Russell Midcap® Index 0.69% 2.82% 2.35% 12.33% 9.58% 12.22% 10.23% 11.35%
S&P 500® Index 0.62% 3.43% 2.65% 14.37% 11.93% 13.42% 10.17% 9.74%
Expense Ratio as of the fiscal year ended 9/30/17: 1.12%

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. 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.

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 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
Ariel Appreciation Fund

Schedule of Holdings

As of June 30, 2018
Shares Security Description Ticker Current Value ($) % of Net Assets
Top Ten Equity Holdings
418,200 Laboratory Corp. of America Holdings LH 75,079,446 4.6
635,000 Northern Trust Corp. NTRS 65,335,150 4.0
605,175 J.M. Smucker Co. SJM 65,044,209 4.0
1,081,615 Keysight Technologies, Inc. KEYS 63,847,734 3.9
1,448,200 Aflac, Inc. AFL 62,301,564 3.8
554,100 Zimmer Biomet Holdings, Inc. ZBH 61,748,904 3.8
2,633,030 Interpublic Group of Cos., Inc. IPG 61,718,223 3.8
1,184,600 First American Financial Corp. FAF 61,267,512 3.8
679,400 Omnicom Group, Inc. OMC 51,817,838 3.2
1,385,900 Kennametal, Inc. KMT 49,753,810 3.1
1,015,120 Lazard Ltd., Class A LAZ 49,649,519 3.1
961,952 Houlihan Lokey, Inc. HLI 49,271,181 3.0
360,899 Stanley Black & Decker, Inc. SWK 47,930,996 3.0
2,908,000 Mattel, Inc. MAT 47,749,360 2.9
1,981,337 MSG Networks, Inc. MSGN 47,453,021 2.9
212,454 Thermo Fisher Scientific, Inc. TMO 44,007,722 2.7
953,600 BorgWarner, Inc. BWA 41,157,376 2.5
364,680 Charles River Laboratories Intl, Inc. CRL 40,938,977 2.5
252,000 Snap-on, Inc. SNA 40,501,440 2.5
697,300 CBS Corp., Class B CBS 39,202,206 2.4
258,000 Willis Towers Watson plc WLTW 39,112,800 2.4
273,150 Illinois Tool Works, Inc. ITW 37,842,201 2.3
1,177,524 Nielsen Holdings plc NLSN 36,420,817 2.3
2,426,964 Bristow Group, Inc. BRS 34,244,462 2.1
786,600 National Oilwell Varco NOV 34,138,440 2.1
655,600 Nordstrom, Inc. JWN 33,946,968 2.1
515,400 Stericycle, Inc. SRCL 33,650,466 2.1
531,800 Progressive Corp. PGR 31,455,970 1.9
1,190,580 U.S. Silica Holdings, Inc. SLCA 30,586,000 1.9
593,700 Cardinal Health, Inc. CAH 28,990,371 1.8
84,266 The Madison Square Garden Co., Class A MSG 26,138,471 1.6
1,208,400 Western Union Co. WU 24,566,772 1.5
241,589 BOK Financial Corp. BOKF 22,711,782 1.4
768,868 KKR & Co. L.P. KKR 19,106,370 1.2
531,900 Blackstone Group L.P. BX 17,111,223 1.1
514,500 Viacom, Inc., Class B VIAB 15,517,320 1.0
308,458 International Speedway Corp., Class A ISCA 13,788,073 0.9
331,919 Oaktree Capital Group LLC OAK 13,492,507 0.8
1,208,300 TEGNA, Inc. TGNA 13,110,055 0.8
176,989 Anixter Intl, Inc. AXE 11,203,404 0.7
182,250 CBRE Group, Inc., Class A CBRE 8,700,615 0.5
49,580 JLL JLL 8,229,784 0.5
Total Equities   1,599,841,059 98.5  
Short Term Investments      
24,050,556 Northern Institutional Treasury Portfolio NITXX 24,050,556 1.5
  Other Assets less Liabilities   195,090 0.0
Grand Total   $1,624,086,705 100.0%  




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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