Why Ariel’s focused value approach
Ariel’s focused value approach attempts to take advantage of infrequent but significant gaps between short-term price and long-term intrinsic value.
Experience matters
Charles K. Bobrinskoy has more than 35 years of industry experience.
All-cap portfolios offer larger opportunity set
Although the portfolio is relatively concentrated in a limited number of names and industries, we consider companies of all sizes.
In-depth sector and industry expertise informs each investment decision
Our research analysts evaluate companies within a well-established “circle of competence” focusing on private market value (PMV)—in industries where we are truly experts.
Risk management is a top priority
Risk is defined as a permanent impairment of capital, controlled at the portfolio and stock level via allocation limits.
We mitigate risk by investing with a margin of safety (40% discount to PMV), employing proprietary debt and moat ratings.
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.
All cap, traditional value
Investor Class: 06/30/2005
Institutional Class: 12/30/2011
Investor Class: ARFFX
Institutional Class: AFOYX
$56.6 million as of 9/30/2022
Our focused value investment philosophy
Patience
We take the long-term view.- Three to five year horizon permits us to be opportunistic when price dislocations arise
- Identify and research quality companies and patiently wait for the margin of safety we require
Independence
We invest to our convictions, not to benchmarks.- Divergence from conventional wisdom adds value by taking advantage of market inefficiencies
- Construct a high active share portfolio concentrated in a limited number of names and industries
- Courage to buy when others are selling and sell when others are buying
Expertise
We specialize in bottom-up, fundamental analysis.- Comprehensive reading and deep industry expertise help source stocks we closely monitor on our watch list for a buying opportunity
- Surround company to identify prospects — and problems — others don’t recognize
Teamwork
We work collaboratively with a shared commitment to excellence.- Leverage our network and relationships, while drawing on the team’s investment knowledge
- Research team industry specialists inform final decisions made by 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.
Ariel Focus Fund
Investor Class | ARFFXPerformance
| Inception date: June 30, 2005 | Annualized | |||||||
| One Month |
Three Months |
Year To Date |
One Year |
Three Years |
Five Years |
Ten Years |
Since Inception |
|
|---|---|---|---|---|---|---|---|---|
| Ariel Focus Fund | 12.95% | -3.56% | -8.42% | -8.26% | 7.88% | 6.19% | 8.98% | 5.95% |
| Russell 1000® Value Index | 10.25% | -2.41% | -9.32% | -7.00% | 7.31% | 7.21% | 10.30% | 7.41% |
| S&P 500® Index | 8.10% | -5.86% | -17.70% | -14.61% | 10.21% | 10.44% | 12.79% | 9.21% |
Ariel Focus Fund
Investor Class | ARFFXPerformance
| Inception date: June 30, 2005 | Annualized | |||||||
| One Month |
Three Months |
Year To Date |
One Year |
Three Years |
Five Years |
Ten Years |
Since Inception |
|
|---|---|---|---|---|---|---|---|---|
| Ariel Focus Fund | -10.71% | -7.45% | -18.92% | -14.91% | 4.34% | 3.88% | 7.51% | 5.24% |
| Russell 1000® Value Index | -8.77% | -5.62% | -17.75% | -11.36% | 4.36% | 5.29% | 9.17% | 6.84% |
| S&P 500® Index | -9.21% | -4.88% | -23.87% | -15.47% | 8.16% | 9.24% | 11.70% | 8.76% |
Gross Expense Ratio as of the fiscal year ended 9/30/21: 1.20%*
*Effective February 1, 2014, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees and reimburse expenses in order to limit Ariel Focus Fund’s total annual operating expenses to 1.00% of net assets for the Investor Class through the end of the fiscal year ending September 30, 2023. Through January 31, 2014, the Expense Cap was 1.25% for the Investor Class.
Ariel Focus Fund is a non-diversified fund and therefore may be subject to greater volatility than a more diversified investment. The Fund is often concentrated in fewer sectors than its benchmarks, and its performance may suffer if these sectors underperform the overall stock market. The intrinsic value of the stocks in which the Fund invests may never be recognized by the broader market. Investing in small cap and mid-cap stocks is more risky and more volatile than investing in large cap stocks. 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 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. 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.
Click here for a fund prospectus.
Schedule of Holdings
| Shares | Security Description | Ticker | Current Value ($) | % of Net Assets | |
|---|---|---|---|---|---|
|
Top Ten Equity Holdings
|
|||||
| 109,470 | APA Corp. | APA | 3,742,779 | 6.6 | |
| 41,536 | BOK Financial Corp. | BOKF | 3,690,889 | 6.5 | |
| 11,454 | Goldman Sachs Group, Inc. | GS | 3,356,595 | 5.9 | |
| 69,021 | Mosaic Co. | MOS | 3,335,785 | 5.9 | |
| 14,576 | Snap-on, Inc. | SNA | 2,934,878 | 5.2 | |
| 92,689 | BorgWarner, Inc. | BWA | 2,910,435 | 5.1 | |
| 143,401 | Resideo Technologies, Inc. | REZI | 2,733,223 | 4.8 | |
| 7,019 | Lockheed Martin Corp. | LMT | 2,711,370 | 4.8 | |
| 28,875 | Northern Trust Corp. | NTRS | 2,470,545 | 4.4 | |
| 13,891 | Johnson & Johnson | JNJ | 2,269,234 | 4.0 | |
| 35,307 | Oracle Corp. | ORCL | 2,156,198 | 3.8 | |
| 10,111 | Laboratory Corp. of America Holdings | LH | 2,070,834 | 3.7 | |
| 63,960 | Lazard, Ltd., Class A | LAZ | 2,035,847 | 3.6 | |
| 130,161 | Barrick Gold Corp. | GOLD | 2,017,496 | 3.6 | |
| 21,235 | Mohawk Industries, Inc. | MHK | 1,936,420 | 3.4 | |
| 140,431 | Western Union Co. | WU | 1,895,818 | 3.4 | |
| 37,109 | Madison Square Garden Entertainment Corp. | MSGE | 1,636,136 | 2.9 | |
| 40,643 | Bank of New York Mellon Corp. | BK | 1,565,568 | 2.8 | |
| 10,024 | Madison Square Garden Sports Corp. | MSGS | 1,369,880 | 2.4 | |
| 7,532 | Generac Holdings, Inc. | GNRC | 1,341,750 | 2.4 | |
| 26,016 | Boyd Gaming Corp. | BYD | 1,239,662 | 2.2 | |
| 26,654 | First American Financial Corp. | FAF | 1,228,749 | 2.2 | |
| 11,334 | Zimmer Biomet Holdings, Inc. | ZBH | 1,184,970 | 2.1 | |
| 111,392 | ZimVie, Inc. | ZIMV | 1,099,439 | 1.9 | |
| 3,312 | Zebra Technologies Corp. | ZBRA | 867,777 | 1.5 | |
| 19,732 | KKR & Co., Inc. | KKR | 848,476 | 1.5 | |
| 23,305 | Bank of America Corp. | BAC | 703,811 | 1.3 | |
| Total Equities | 55,354,564 | 97.9 | |||
| Short Term Investments | |||||
| 1,375,026 | Northern Institutional Treasury Portfolio | NTPXX | 1,375,026 | 2.4 | |
| Other Assets less Liabilities | (153,406) | (0.3) | |||
| Grand Total | $56,576,184 | 100.0% | |||
Sector Weightings (%)
| Ariel Focus Fund | Russell 1000 Value | S&P 500 | |
|---|---|---|---|
| Financials | 28.10 | 19.22 | 10.63 |
| Industrials | 25.49 | 12.39 | 12.11 |
| Consumer Discretionary | 12.65 | 10.07 | 15.06 |
| Health Care | 11.71 | 16.25 | 14.33 |
| Basic Materials | 9.46 | 3.02 | 1.81 |
| Energy | 6.62 | 7.93 | 4.72 |
| Technology | 3.81 | 8.17 | 26.36 |
| Telecommunications | 0.00 | 4.44 | 2.53 |
| Real Estate | 0.00 | 4.95 | 2.90 |
| Utilities | 0.00 | 6.25 | 3.36 |
| Consumer Staples | 0.00 | 7.32 | 6.19 |
Sector weightings are calculated based on equity holdings as a percentage of total net assets.
Portfolio Characteristics
| Ariel Focus Fund | Russell 1000 Value | S&P 500 | |
|---|---|---|---|
| Market Capitalization (In billions) | |||
| Large Capitalization (128.68 & Above) | 9.27% | 36.08% | 53.44% |
| Medium/Large Capitalization (36.01 -- 128.68) | 12.49% | 30.17% | 28.64% |
| Medium Capitalization (11.45 -- 36.01) | 24.41% | 22.09% | 15.79% |
| Medium/Small Capitalization (3.79 -- 11.45) | 37.8% | 10.4% | 2.13% |
| Small Capitalization (3.79 & Below) | 16.03% | 1.26% | 0% |
| Dollar-Weighted Average (BIL)1 | 47.24 | 134.69 | 468.54 |
| Valuation Metrics2 | |||
| Forward Price/Earnings | 7.98 | 12.15 | 15.37 |
| Trailing Price/Earnings | 9.23 | 13.68 | 18.09 |
| Discount to Private Market Value | -39.72 | n/a | n/a |
| Fundamentals | |||
| Long Term Estimated Earnings Growth3 | 5.5 | 7.48 | 9.06 |
| Debt Rating | BBB | BBB+ | A- |
| Interest Coverage Ratio4 | 11.82 | 6.83 | 9.35 |
| Return on Equity5 | 19.94 | 17.91 | 27.17 |
| Number of Holdings6 | 27 | 855 | 503 |
| Benchmark Sensitive Statistics | |||
| Turnover7 | 32.53 | n/a | n/a |
| Active Share8 | 94.24 | n/a | n/a |
| Beta vs. S&P 500 (5-year)9 | 1.18 | 0.94 | 1.00 |
| Current Beta9 | 0.91 | 0.82 | 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: Eagle
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 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. 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.
Fund Materials
Our focused 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 and misunderstood stocks displaying a significant gap between current price and long-term intrinsic value - Benefit:
Clearly defined differentiated parameters uncover ideas others may overlook
Bottom-up Research
Bottom-up research determines underlying value and identifies key issues- Process:
In depth financial analysis and valuation assessments weighed accordingly - 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 within research team - Risk management:
A devil’s advocate may be assigned to challenge an investment thesis - Benefit:
Ideas vetted from multiple perspectives yield more informed decisions
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