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Value Strategy
Ariel 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 $1 billion and $7.5 billion
Inception:
Investor Class: 11/06/1986
Institutional Class: 12/30/2011
Number of holdings: 25-45
Turnover: 20-30%
Ticker Symbol:
Investor Class: ARGFX
Institutional Class: ARAIX
Fund Assets (all classes):
$2.3 billion as of 9/30/2018
 
Portfolio Managers
John W. Rogers, Jr.
Lead Portfolio Manager
John P. Miller, CFA
Portfolio Manager
Kenneth E. Kuhrt Kenneth E. Kuhrt, CPA
Portfolio Manager
 
Fund Spotlight
John Rogers and Charlie Bobrinskoy reflect on 35 years of patient investing, lessons of the financial crisis, the state of the economy, and more.
 

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.



 
JWR-Independent-Thinking.png
John W. Rogers, Jr. on
Independent Thinking
 
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Ken Kuhrt on
The Importance of Patience
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Investor Class
Institutional Class
Quarter End
Month End

Ariel Fund

Investor Class | ARGFX

Performance

As of November 30, 2018
Inception date: November 6, 1986 Annualized
  One
Month
Three
Months
Year
To Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Fund 3.34% -6.26% -0.67% -0.39% 8.43% 8.00% 16.87% 11.14%
Russell 2500™ Value Index 1.89% -8.28% -1.47% -1.07% 9.11% 7.13% 13.56% 11.00%
Russell 2500™ Index 1.89% -9.84% 1.07% 1.41% 10.02% 8.16% 15.08% 10.66%
S&P 500® Index 2.04% -4.40% 5.11% 6.27% 12.16% 11.12% 14.32% 10.32%

Ariel Fund

Investor Class | ARGFX

Performance

As of September 30, 2018
Inception date: November 6, 1986 Annualized
  One
Month
Three
Months
Year
To Date
One
Year
Three
Years
Five
Years
Ten
Years
Since
Inception
Ariel Fund 0.59% 3.44% 6.59% 14.98% 15.43% 11.41% 12.23% 11.45%
Russell 2500™ Value Index -1.56% 2.67% 5.75% 10.24% 14.51% 9.99% 10.53% 11.31%
Russell 2500™ Index -1.52% 4.70% 10.41% 16.19% 16.13% 11.37% 12.02% 11.02%
S&P 500® Index 0.57% 7.71% 10.56% 17.91% 17.31% 13.95% 11.97% 10.55%
Expense Ratio as of the fiscal year ended 9/30/18: 1.01%*

*As of September 30, 2017, Ariel Fund's Investor Class shares had an annual expense ratio of 1.01% (as shown in the Fund's current prospectus).

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. Ariel 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 2500™ Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500™ Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2500 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 Distributors, LLC is a member of the Securities Investor Protection Corporation.



Ariel Fund

Schedule of Holdings

As of September 30, 2018
Shares Security Description Ticker Current Value ($) % of Net Assets
Top Ten Equity Holdings
3,962,239 KKR & Co., Inc. KKR 108,050,257 4.8
592,000 Zebra Technologies Corp. ZBRA 104,683,360 4.6
3,711,584 MSG Networks, Inc. MSGN 95,758,867 4.2
2,653,925 Viacom, Inc., Class B VIAB 89,596,508 4.0
1,912,841 Kennametal, Inc. KMT 83,323,354 3.7
1,658,003 Lazard Ltd., Class A LAZ 79,799,684 3.5
1,151,385 Keysight Technologies, Inc. KEYS 76,313,798 3.4
413,863 Snap-on, Inc. SNA 75,985,247 3.4
576,040 Royal Caribbean Cruises Ltd. RCL 74,850,638 3.3
1,013,497 Simpson Manufacturing Co., Inc. SSD 73,437,993 3.2
718,800 Northern Trust Corp. NTRS 73,411,044 3.2
2,590,935 Nielsen Holdings plc NLSN 71,665,262 3.2
5,947,752 TEGNA, Inc. TGNA 71,135,114 3.1
3,091,466 Interpublic Group of Cos., Inc. IPG 70,701,827 3.1
656,845 J.M. Smucker Co. SJM 67,398,865 3.0
4,290,700 Mattel, Inc. MAT 67,363,990 3.0
1,297,988 First American Financial Corp. FAF 66,963,201 3.0
1,413,853 CBRE Group, Inc., Class A CBRE 62,350,917 2.8
411,899 JLL JLL 59,445,264 2.6
319,300 Laboratory Corp. of America Holdings LH 55,456,024 2.5
1,076,981 Meredith Corp. MDP 54,979,880 2.4
919,365 MTS Systems Corp. MTSC 50,335,234 2.2
2,578,061 U.S. Silica Holdings, Inc. SLCA 48,544,889 2.1
358,606 Charles River Laboratories Intl, Inc. CRL 48,246,851 2.1
1,093,023 Oaktree Capital Group LLC OAK 45,251,152 2.0
892,899 Adtalem Global Education, Inc. ATGE 43,037,732 1.9
607,042 Anixter Intl, Inc. AXE 42,675,053 1.9
692,100 Stericycle, Inc. SRCL 40,612,428 1.8
1,497,949 Janus Henderson Group plc JHG 40,384,705 1.8
900,928 Brady Corp., Class A BRC 39,415,600 1.7
123,381 Bio-Rad Laboratories, Inc. BIO 38,617,019 1.7
3,011,667 Bristow Group, Inc. BRS 36,531,521 1.6
198,704 Mohawk Industries, Inc. MHK 34,842,746 1.5
222,900 Affiliated Managers Group, Inc. AMG 30,474,888 1.4
1,553,354 Western Union Co. WU 29,606,927 1.3
566,109 International Speedway Corp., Class A ISCA 24,795,574 1.1
69,524 The Madison Square Garden Co., Class A MSG 21,922,308 1.0
97,689 Littelfuse, Inc. LFUS 19,331,676 0.9
75,863 Fair Isaac Corp. FICO 17,338,489 0.8
Total Equities   2,234,635,886 98.8  
Short Term Investments      
19,465,643 Northern Institutional Treasury Portfolio NITXX 19,465,643 0.9
  Other Assets less Liabilities   7,107,743 0.3
Grand Total   $2,261,209,272 100.0%  




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 Investments Vice Chairman and Head of Investment Group Charlie Bobrinskoy discusses the research process for the Ariel Value Strategy.
Ariel Appreciation Fund Co-Portfolio Manager Tim Fidler shares his unique approach to managing risk.
 
Ariel Fund

Fund Materials

 
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 Fund

Sector Weightings (%)

As of September 30, 2018
  Ariel Fund Russell 2500 Value Russell 2500 S&P 500
Consumer Discretionary 32.25 11.32 14.37 14.42
Financial Services 27.44 37.71 25.48 19.02
Producer Durables 23.56 13.99 14.74 10.22
Health Care 6.37 5.38 13.43 14.60
Materials and Processing 5.46 7.76 7.40 2.60
Consumer Staples 3.02 3.17 2.54 5.91
Technology 1.91 6.65 13.24 22.43
Utilities 0.00 6.49 4.02 4.80
Energy 0.00 7.49 4.76 6.00

Represents percentage of total equity holdings in the portfolio


Ariel Fund

Portfolio Characteristics

As of September 30, 2018
  Ariel Fund Russell 2500 Value Russell 2500 S&P 500
Market Capitalization (In billions)  
Large Capitalization (114.15 & Above) 0.0% 0.0% 0.0% 50.2%
Medium/Large Capitalization (31.05 -- 114.15) 0.0% 0.0% 0.0% 30.5%
Medium Capitalization (10.77 -- 31.05) 28.7% 5.4% 8.4% 16.7%
Medium/Small Capitalization (3.82 -- 10.77) 39.5% 52.2% 49.6% 2.7%
Small Capitalization (3.82 & Below) 31.7% 42.4% 42.0% 0.0%
Dollar-Weighted Average (BIL)1 6.09 3.76 3.96 112.50
Valuation Metrics2  
Forward Price/Earnings 13.3 14.9 17.0 17.6
Trailing Price/Earnings 15.1 22.6 30.2 24.3
Discount to Private Market Value -21.5 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth3 11.0 11.0 13.5 14.5
Interest Coverage Ratio4 6.0 4.2 5.1 7.5
Return on Equity5 15.0 9.7 11.8 17.5
Portfolio Construction  
Number of Holdings5 39 1748 2519 505
Turnover5 18.9 n/a n/a n/a
Benchmark Sensitive Statistics  
Active Share 96.87 n/a n/a n/a
Beta vs. S&P 500 (5-year)6 1.29 0.94 1.02 1.00
Current Beta7 0.88 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 2500™ Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500™ Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2500 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.



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.

Check the background of this firm on FINRA's BrokerCheck
Ariel Distributors, LLC is a member of the Securities Investor Protection Corporation