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):
$1.9 billion as of 6/30/2016
 
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
Ariel portfolio managers discuss patient investing, how they navigate challenged businesses, and what they think the market is missing.
 

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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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)Performance

As of July 31, 2016
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 6.36% 3.31% 3.92% -3.43% 8.26% 11.43% 7.12% 11.14%
Russell 2500™ Value Index 4.55% 7.04% 12.75% 6.36% 7.74% 11.41% 7.15% 11.21%
Russell 2000® Value Index 5.40% 7.65% 11.81% 5.59% 6.01% 10.03% 5.85% 10.41%
S&P 500® Index 3.69% 5.82% 7.66% 5.61% 11.16% 13.38% 7.75% 10.10%

Ariel Fund (Investor Class)Performance

As of June 30, 2016
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 -3.84% -1.98% -2.29% -10.13% 8.52% 8.65% 6.22% 10.94%
Russell 2500™ Value Index 0.60% 4.37% 7.84% 0.22% 8.14% 9.59% 6.52% 11.07%
Russell 2000® Value Index 0.30% 4.31% 6.08% -2.58% 6.36% 8.15% 5.15% 10.24%
S&P 500® Index 0.26% 2.46% 3.84% 3.99% 11.66% 12.10% 7.42% 10.00%
Expense Ratio as of the fiscal year ended 9/30/15: 1.02%

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 often invests a significant portion of its assets in companies within the financial services and consumer discretionary sectors 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 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted 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 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 Fund

Schedule of Holdings

As of June 30, 2016
Shares Security Description CUSIP Ticker Current Value ($) % of Net Assets
Top Ten Equity Holdings
6,215,039 KKR & Co. L.P. 48248M102 KKR 76,693,581 4.0
2,487,203 Lazard Ltd. G54050102 LAZ 74,068,905 3.9
2,373,831 Brady Corp. 104674106 BRC 72,544,275 3.8
3,094,077 TEGNA, Inc. 87901J105 TGNA 71,689,764 3.7
1,377,908 Meredith Corp. 589433101 MDP 71,527,204 3.7
3,187,341 Kennametal Inc. 489170100 KMT 70,472,109 3.7
545,578 Dun & Bradstreet Corp. 26483E100 DNB 66,473,224 3.5
2,718,066 Interpublic Group of Cos., Inc. 460690100 IPG 62,787,325 3.3
4,434,616 Janus Capital Group Inc. 47102X105 JNS 61,729,855 3.2
389,345 J.M. Smucker Co. 832696405 SJM 59,340,071 3.1
1,450,588 First American Financial Corp. 31847R102 FAF 58,342,649 3.0
1,459,297 Simpson Manufacturing Co., Inc. 829073105 SSD 58,328,101 3.0
406,443 Bio-Rad Laboratories, Inc. 090572207 BIO 58,129,478 3.0
1,157,800 Zebra Technologies Corp. 989207105 ZBRA 58,005,780 3.0
587,299 JLL 48020Q107 JLL 57,232,288 3.0
2,126,853 CBRE Group, Inc. 12504L109 CBG 56,319,067 2.9
836,340 Royal Caribbean Cruises Ltd. V7780T103 RCL 56,160,231 2.9
678,126 Charles River Laboratories Intl, Inc. 159864107 CRL 55,904,707 2.9
1,025,003 Anixter Intl Inc. 035290105 AXE 54,612,160 2.9
403,600 Laboratory Corp. of America Holdings 50540R409 LH 52,576,972 2.7
1,559,202 International Speedway Corp. 460335201 ISCA 52,155,307 2.7
255,804 Mohawk Industries, Inc. 608190104 MHK 48,541,367 2.5
3,111,708 MSG Networks Inc. 553573106 MSGN 47,733,601 2.5
1,371,461 U.S. Silica Holdings, Inc. 90346E103 SLCA 47,274,261 2.5
697,700 Northern Trust Corp. 665859104 NTRS 46,229,602 2.4
2,473,216 DeVry Education Group Inc. 251893103 DV 44,122,173 2.3
1,333,500 Mattel, Inc. 577081102 MAT 41,725,215 2.2
894,616 MTS Systems Corp. 553777103 MTSC 39,219,965 2.1
1,987,154 Western Union Co. 959802109 WU 38,113,614 2.0
905,725 Viacom, Inc. 92553P201 VIAB 37,560,416 2.0
311,266 Littelfuse, Inc. 537008104 LFUS 36,788,529 1.9
229,013 Snap-on Inc. 833034101 SNA 36,142,832 1.9
192,424 The Madison Square Garden Co. 55825T103 MSG 33,195,064 1.7
2,482,155 Bristow Group Inc. 110394103 BRS 28,321,389 1.5
1,928,817 Contango Oil & Gas Co. 21075N204 MCF 23,608,720 1.2
775,065 Sotheby's 835898107 BID 21,236,781 1.1
150,163 Fair Isaac Corp. 303250104 FICO 16,969,921 0.9
19,883 Graham Holdings Co. 384637104 GHC 9,733,524 0.5
  Cash, Other Assets and Liabilities     17,828,378 0.9
Grand Total   $1,919,438,405 100.0%  

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

Ariel 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
Morningstar Analyst Report: Independent fund report published by Morningstar
Ariel Fund

Sector Weightings (%)

As of June 30, 2016
  Ariel Fund Russell 2500 Value Russell 2000 Value S&P 500
Consumer Discretionary 31.46 9.68 10.89 13.67
Financial Services 29.04 40.09 41.32 17.79
Producer Durables 17.96 11.82 12.53 10.54
Health Care 8.76 4.55 4.58 14.63
Materials and Processing 5.55 6.33 5.32 3.06
Consumer Staples 3.12 2.31 2.36 9.46
Technology 2.87 7.72 9.72 16.88
Energy 1.24 7.74 4.81 7.42
Utilities 0.00 9.76 8.46 6.54

Represents percentage of total equity holdings in the portfolio


Ariel Fund

Portfolio Characteristics

As of June 30, 2016
  Ariel Fund Russell 2500 Value Russell 2000 Value S&P 500
Market Capitalization (In billions)  
Large Capitalization (88.65 & Above) 0.0% 0.0% 0.0% 47.9%
Medium/Large Capitalization (24.85 -- 88.65) 0.0% 0.0% 0.0% 31.7%
Medium Capitalization (7.99 -- 24.85) 28.2% 5.9% 0.0% 18.0%
Medium/Small Capitalization (2.90 -- 7.99) 29.9% 52.0% 12.7% 2.3%
Small Capitalization (2.90 & Below) 41.9% 42.1% 87.3% 0.0%
Dollar-Weighted Average (BIL)1 3.73 2.79 1.26 75.57
Valuation Metrics2  
Forward Price/Earnings 13.6 15.9 15.2 17.3
Trailing Price/Earnings 27.8 24.5 25.3 20.7
Discount to Private Market Value -23.9 n/a n/a n/a
Fundamentals  
5 Yr. Estimated Earnings Growth3 8.4 8.3 8.9 10.9
Interest Coverage Ratio4 6.7 4.5 4.6 7.9
Return on Equity5 13.2 8.6 8.1 17.3
Number of Holdings5 38 1716 1361 505
Benchmark Sensitive Statistics  
Turnover 26.0 n/a n/a n/a
Active Share6 97.85 n/a n/a n/a
Beta vs. S&P 500 (5-year)7 1.46 1.12 1.16 1.00
Current Beta8 1.22 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 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted 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 large cap U.S. equities. It includes 500 leading companies.

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. 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 investors outside the United States.

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