TO: Clients and Friends of Ariel Investments, LLC

FROM: Ariel Investments

DATE: November 10, 2022

RE: Another Market Update

This month, Ariel held its second semi-annual 2022 Portfolio Manager Conference Call. A replay and transcript of the webcast are available here.

Co-CEO & President Mellody Hobson and Head of Institutional Client & Investor Relations Jennifer DiGrazia hosted a conversation with Ariel portfolio managers on 3Q 2022 and what’s next. A brief recap is below.

Additionally: As we recently shared, our quarterly portfolio manager letters are available here.

40 Years of Patient Investing

• In just two months, Ariel will embark on its 40th anniversary year. Over four decades of patient investing, we have lived through difficult periods like the crash of 1987, the dot-com bust of 2001, the Great Financial Crisis of 2008, and COVID-19.
• Mellody Hobson reminded the audience that while markets have been recently challenging in the U.S. and around the globe, Ariel continues to focus on corporate fundamentals through our bottom-up stock picking approach. We look over the horizon without getting swept up by the hysteria of every moment. Macroeconomic forecasting is not what we do.
• Hobson continued: Although these times are uncomfortable, we know that mining value through focused and disciplined investment practices – focusing on the underlying business strategy of each of our portfolio holdings – can drive outsized long-term returns.
• Chairman, Co-CEO & CIO John W. Rogers, Jr. explained that Ariel’s Domestic Small and Smid Cap Value portfolio companies are selling at more than a 40% discount to private market value (PMV). When stocks are undervalued relative to the market, there remains an opportunity to take advantage of the volatility, with the possibility of outperforming coming out of market cycles like the one we are currently in.
• Rupal Bhansali, who manages our International & Global strategies, discussed what drove a more difficult third quarter for her portfolios – though this has not dislodged their strong outperformance year-to-date. Temporary, idiosyncratic developments in portfolio companies like GlaxoSmith, Baidu, and a UK-based auto insurance company were the main detractors.

Recession or No Recession? That is the Question.

• Vice Chairman Charlie Bobrinskoy remarked that while he began the year thinking that the market was overestimating the probability of a recession, this is more likely today than our original prediction at the start of 2022. As the Fed begins to slow down the economy, we do believe that as long-term investors, being “wrong” can ultimately lead to being “right.”
• Tim Fidler, Co-Portfolio Manager of Ariel’s Mid Cap Value portfolios remarked that with persistently high inflation, there is a silver lining. The market has been stable and resilient. Fidler maintained that if you look past the headlines, the health of the U.S. financial system and consumer balance sheets are in excellent shape – and the same goes for corporate balance sheets. Over the past four decades, “we’ve certainly seen worse.”

Our Current Positioning & What’s Next

Our portfolio managers addressed questions from viewers on a range of topics, including:

• U.S. Midterm Elections and their potential impact on the markets
• Growth vs. value
• Small cap vs. large cap
• Opportunities in light of recent talk of a potential recession in the UK
• Whether or not markets are “oversold”
• U.S. travel and leisure names and the outlook for the broader sector, particularly cruise lines
• Perspectives on Chinese stocks in light of the recent Party Congress meeting
• U.S. commercial real estate names, the sector and the housing market at large
• Currency fluctuations and their impact on our
• International & Global portfolios
• Updates on Ariel’s private equity subsidiary, Ariel Alternatives

If you would like to be connected to a member of our team to discuss Ariel’s positioning in more detail, please do not hesitate to reach us at [email protected]. As always, thank you for your relationship with us.

The Portfolio Manager Conference Call you are about to view is available to the investing public but was geared toward use by institutional investors or individual investors with their financial advisors. The replay highlights information about the separately managed account strategies offered by Ariel Investments, LLC. These strategies are available to institutional clients, including public and private retirement plans, union plans, foundations and endowment funds, and high net worth individuals. Advisory services provided and the fees charged will vary depending upon the nature of the account under management. The performance of the Ariel Investments mutual funds will differ from the performance of the strategies discussed in this replay. Investors should consult their financial advisors before making any investment decisions. Past performance does not guarantee future results.

The information in this presentation does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. The opinions and forecasts were current as of the date of this presentation but are subject to change. Any specific securities identified and discussed in this presentation do not represent all of the securities purchased or sold for the firm’s clients. This material should not be considered an offer for any of the securities referenced.

Portfolio holdings are subject to change. The securities discussed do not represent an entire portfolio and in the aggregate may represent only a small percentage of portfolio holdings of a composite. The performance of any single portfolio holding or sector is no indication of the performance of other portfolio holdings or sectors of a composite. See current holdings information for Ariel’s portfolios on this web site by navigating to a specific product and then clicking on the “Holdings” tab.

Investing in small- and mid-cap stocks is more risky and volatile than investing in large-cap stocks. The intrinsic value of the stocks in which the mutual funds (the Funds) invest may never be recognized by the broader market. The Funds are often concentrated in fewer sectors that their benchmarks, and their performance may suffer if these sectors underperform the overall stock market. Investments in foreign securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving foreign economies and markets, foreign political systems, foreign regulatory standards, foreign currencies and taxes. Investments in emerging markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price. The use of currency derivatives and exchange-traded funds (ETFs) may increase investment losses and expenses and create more volatility. Investing in equity stocks is risky and subject to the volatility of the markets. A concentrated or focused portfolio may be subject to greater volatility than a more diversified portfolio. Investments in emerging markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price.