Global Strategy
Ariel International (DM)

Why Ariel’s global approach


Experience matters

  • Rupal J. Bhansali has more than 25 years of industry experience

Managing risk is a top priority

  • We pay as much attention to risk management as to return management

Screening out provides a stronger starting point

  • While others screen in, we begin our process by screening out high-risk companies

All-cap portfolios offer larger opportunity set

  • Although our portfolios are relatively concentrated, we consider companies of all sizes

Attention to business models builds more resilient portfolios

  • In addition to applying our financial models, we consider the long-term viability of each company's business model
Facts
Market Cap Range: All Cap
Inception: December 31, 2011
Number of companies: 50-150
Turnover: 30-80%
Net Assets: $814.6 million
as of 6/30/2016
 
Portfolio Manager
Bhansali_Rupal_Web.png Rupal J. Bhansali
Portfolio Manager
 

Our global investment philosophy


Patience

We take the long-term view.
  • Emphasis on higher absolute and relative returns over a full market cycle with less risk
  • Focus research as much on what can go wrong as what can go right

Independence

We invest to our convictions, not to benchmarks.
  • Benchmark aware only to the extent that tracking error is by design and not by default
  • Significant exposure to our highest-conviction ideas, tempered with prudent risk controls

Expertise

We specialize in bottom-up fundamental research.
  • Focus on connecting information versus collecting information
  • Take business analyst approach rather than financial analyst approach
  • Have extensive interactions with management teams around the world
  • Research a company's global peers to fully inform our competitive assessment

Teamwork

We work collaboratively with a shared commitment to excellence.
  • Debate best, base and worst case scenarios for every company considered
  • Three team members with clearly defined roles vet each stock

 
RB-Int-Global-Investing1.png
Rupal Bhansali on International and Global Investing I
 
RB-Int-Global-Investing2.png
Rupal Bhansali on International and Global Investing II
Ariel International (DM)

Schedule of Holdings

As of June 30, 2016
  Units Security Description Market Value % of Total Value
CANADA     828,187 1.5
  16,350 IGM Financial Inc. 443,046 0.8
  7,036 Rogers Communications Inc. 283,522 0.5
  3,680 Suncor Energy, Inc. 101,619 0.2
CHINA     1,864,852 3.2
  10,818 Baidu, Inc. ADR 1,786,593 3.1
  130,000 Lenovo Group Ltd 78,259 0.1
FINLAND     2,629,739 4.6
  283,189 Nokia Corp. 1,607,383 2.8
  179,676 Nokia Corp. ADR 1,022,356 1.8
FRANCE     2,596,177 4.6
  17,347 Michelin (CGDE) 1,643,471 2.9
  14,944 BNP Paribas SA 660,550 1.2
  1,583 L'Air Liquide SA 165,551 0.3
  1,513 Euler Hermes Group 126,605 0.2
GERMANY     7,903,568 13.8
  41,321 Deutsche Boerse AG 3,378,637 5.9
  82,674 Dialog Semiconductor plc 2,464,410 4.3
  422,520 Telefonica Deutschland Holding 1,734,897 3.0
  1,627 Beiersdorf AG 153,565 0.3
  1,924 SAP SE 143,669 0.3
  372 BASF SE 28,390 0.0
HONG KONG     3,476,301 6.0
  50,804 China Mobile Ltd. ADR 2,941,552 5.1
  884,000 Li & Fung Ltd 426,187 0.7
  9,500 China Mobile Ltd. 108,562 0.2
IRELAND     348,326 0.6
  5,009 Ryanair Holdings plc ADR 348,326 0.6
ITALY     814,195 1.4
  127,006 Snam SpA 756,896 1.3
  937 DiaSorin SpA 57,299 0.1
JAPAN     8,297,069 14.5
  11,500 Shimamura Co., Ltd. 1,701,794 3.0
  8,700 Nintendo Co., Ltd. 1,236,981 2.2
  7,000 Daito Trust Construction Co., Ltd. 1,135,504 2.0
  34,500 Canon Inc. 979,540 1.7
  18,800 Toyota Motor Corp. 925,888 1.6
  151,000 Anritsu Corp 867,021 1.5
  62,700 Nikon Corp. 847,165 1.5
  10,200 Japan Tobacco Inc. 407,980 0.7
  1,000 Murata Manufacturing Co., Ltd. 110,938 0.2
  7,400 Japan Exchange Group, Inc. 84,258 0.1
LUXEMBOURG     500,684 0.8
  10,753 Tenaris ADR 310,117 0.5
  2,337 RTL Group 190,567 0.3
NETHERLANDS     4,552,344 7.9
  120,943 Ahold N.V. 2,675,968 4.7
  20,033 Gemalto N.V. 1,220,378 2.1
  5,295 Core Laboratories N.V. 655,998 1.1
SINGAPORE     243,734 0.4
  17,800 United Overseas Bank Ltd. 243,734 0.4
SPAIN     1,439,977 2.5
  54,236 Endesa SA 1,087,253 1.9
  11,855 Tecnicas Reunidas SA 352,724 0.6
SWEDEN     263,569 0.5
  9,055 H & M Hennes & Mauritz AB 263,569 0.5
SWITZERLAND     5,367,596 9.4
  11,930 Roche Holding AG 3,137,024 5.5
  3,268 Swisscom AG 1,619,672 2.8
  17,688 UBS AG 228,287 0.4
  1,961 Nestle SA 151,312 0.3
  51 SGS SA 116,564 0.2
  667 Novartis AG ADR 55,034 0.1
  1,588 ABB Ltd. 31,175 0.1
  204 Kuehne & Nagel Intl AG 28,528 0.0
UAE     83,777 0.1
  244,184 Dubai Financial Market 83,777 0.1
UNITED KINGDOM     8,506,116 14.8
  22,827 Reckitt Benckiser Group plc 2,295,665 4.0
  51,540 GlaxoSmithKline plc ADR 2,233,744 3.9
  55,660 GlaxoSmithKline plc 1,199,115 2.1
  6,212 British American Tobacco plc ADR 804,330 1.4
  107,407 British Telecom Group plc 591,281 1.0
  12,583 HSBC Holdings plc ADR 393,974 0.7
  10,836 Diageo plc 303,574 0.5
  28,421 HSBC Holdings plc 177,791 0.3
  53,517 Countrywide plc 176,481 0.3
  13,549 IG Group Holdings plc 147,266 0.3
  42,899 Hays Plc 56,247 0.1
  1,644 Markit Ltd 53,594 0.1
  11,523 Pagegroup Plc 45,967 0.1
  553 Rightmove Plc 27,087 0.0
UNITED STATES     3,172,056 5.4
  34,485 Vanguard MSCI EAFE ETF 1,219,390 2.1
  9,812 Harman Intl Industries, Inc. 704,698 1.2
  7,806 EOG Resources Inc. 651,177 1.1
  5,867 Philip Morris Intl, Inc. 596,791 1.0
Total Equities     52,888,267 92.0
Forward Position Long     285,064 0.5
Cash Balance     4,141,407 7.5
Grand Total     57,314,738 100.0

Ariel International (DM)

Commentary

 
Monthly Commentary: Perspectives on the current market
Quarterly Commentary: Quarterly performance update and communication to investors
Turtle Thoughts: A compilation of our portfolio manager letters
Fact Sheets: Quarterly product overview
Ariel International (DM) (Representative Portfolio)

Sector Weightings (%)

As of June 30, 2016
  Ariel International (DM) MSCI EAFE
Information Technology 22.34 5.35
Consumer Staples 14.30 13.33
Financials 14.19 22.34
Telecommunication Services 14.09 5.15
Consumer Discretionary 12.97 12.11
Health Care 12.93 12.38
Energy 4.01 5.21
Utilities 3.57 3.92
Industrials 1.21 13.33
Materials 0.38 6.88

Represents percentage of total equity holdings in the representative portfolio

MSCI EAFE Index is an unmanaged, market-weighted index of companies in developed markets, excluding the U.S. and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.

These sectors are the Global Industry Classification Standard (“GICS”). GICS was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by Ariel Investments, LLC. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Our global process


Negative Screening

Negative screening seeks downside protection
  • Process:
    Screen on risk, not growth rate or valuation
  • Risk management:
    Eliminate approximately 60% of high-risk stocks in universe
  • Benefit:
    Position for downside protection

Bottom-up Research

Proprietary bottom-up research enables better stock picking
  • Process:
    Lead analysts perform research
  • Risk management:
    Assess the prospects and durability of a business franchise
  • Benefit:
    Proprietary insights enable better stock picking

Team Validation

Team validation avoids blind spots in our analysis
  • Process:
    A team of three debates and stress tests each idea
  • Risk management:
    Incorporate macro and micro factors in scenario analyses; lead analyst presents balanced case versus a recommendation
  • Benefit:
    Ideas vetted from multiple perspectives yield more informed final decisions by portfolio manager

Portfolio Construction

Portfolios constructed to manage risks as well as long-term performance
  • Process:
    Seek to own top decile of investment opportunities uncovered
  • Risk management:
    Typically cap security position size at 5% at time of purchase, sector weights at the higher of 25% or 1.5x benchmark, hedge currency if practical and cost-efficient
  • Benefit:
    Designed to generate superior long-term, risk-adjusted performance

Quarter End
Month End

Ariel International (DM) Composite Performance

As of August 31, 2016
Inception date: December 31, 2011 Annualized
  One
Month
Three
Months
Year
To Date
One
Year
Three
Years
Since
Inception
Gross of Fees -0.38% 3.26% 4.10% 4.12% 6.59% 8.64%
Net of Fees -0.45% 3.05% 3.55% 3.29% 5.73% 7.73%
MSCI EAFE 0.07% 1.61% 0.49% -0.12% 2.47% 6.90%

Ariel International (DM) Composite Performance

As of June 30, 2016
Inception date: December 31, 2011 Annualized
  One
Month
Three
Months
Year
To Date
One
Year
Three
Years
Since
Inception
Gross of Fees -0.88% -1.66% -0.07% -2.81% 6.81% 7.99%
Net of Fees -0.95% -1.86% -0.46% -3.59% 5.95% 7.08%
MSCI EAFE -3.36% -1.46% -4.42% -10.16% 2.06% 5.98%


Ariel Investments, LLC is a money management firm headquartered in Chicago, Illinois, with offices in New York and Sydney. Taking a long-term view and applying independent thinking to our investment decisions, we span the market cap spectrum from micro to large and cover the globe with our international and global offerings. Ariel claims compliance with the Global Investment Performance Standards (GIPS®).

The Ariel International (DM) strategy seeks long-term capital appreciation as a primary objective. The strategy’s secondary objective is to generate attractive absolute and risk-adjusted returns, and to attain higher relative returns compared to its benchmark over a full market cycle. The strategy invests primarily in equity securities of foreign (non-U.S.) issuers in developed international markets. The Ariel International (DM) Composite differs from its benchmark, the MSCI EAFE Index, because: (i) the Composite has fewer holdings than the benchmark, (ii) the Composite will invest in Canada, and (iii) the Composite will at times invest a portion of its assets in the U.S. and emerging markets. Index returns reflect the reinvestment of income and other earnings. Indexes are unmanaged, and investors cannot invest directly in an index.

The strategy will invest in foreign securities through the purchase of individual securities on recognized foreign exchanges and over-the-counter markets, or through American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”), or other securities representing underlying shares of foreign companies, including, but not limited to, certificates of deposit issued by foreign banks and foreign branches of U.S. banks, participatory notes (instruments issued by registered foreign financial intermediaries to U.S. institutional investors), or other instruments that allow the strategy to participate in foreign markets. The strategy will invest in large, medium, or small companies without regard to market capitalization. The strategy also will at times invest a portion of its assets in equity securities based in the U.S. and in emerging markets.

The strategy uses various techniques to hedge currency exposure, or to invest significant cash inflows in the market (i.e., reducing “cash drag”), including derivatives, exchange-traded funds (“ETFs”), and other hedges. The strategy will buy and sell currency on a spot basis (i.e., foreign currency trades that settle within two days) and enter into foreign currency forward contracts. The strategy at times will buy and sell foreign currency options and securities, securities index options or futures, other futures contracts or options, and enter into swap agreements, which are types of derivatives. Ariel uses these techniques in an attempt to decrease the strategy’s exposure to changing security prices or foreign currency risk, or to reduce unintended tracking error versus its respective benchmarks, or to address other factors that affect security values. The strategy will at times include the holding of cash or cash equivalents for defensive purposes. Cash equivalents are negotiable instruments, such as commercial paper, treasury bills, short-term government bonds, payable by third parties. Third parties include foreign banks and foreign governments.

Performance results are net of transaction costs and reflect the reinvestment of dividends and other earnings. Net returns reflect the deduction of the maximum advisory fee in effect for the respective period. Effective 1/1/14 the maximum fee is 0.80% per annum. Fees for prior periods are available upon request. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. Fee information is available upon request and may also be found in Ariel’s Form ADV, Part 2. Results shown may be preliminary. Returns are calculated in U.S. dollars. The Ariel International (DM) Composite has been examined for the period from January 1, 2012 through December 31, 2015. A copy of the examination report is available upon request. Past performance does not guarantee future results. Investments in foreign securities may underperform and may be more volatile because of the risks involving foreign economies and markets, foreign political systems, foreign regulatory standards, foreign currencies and taxes. The use of currency derivatives, ETFs, and other hedges may increase investment losses and expenses and create more volatility. Investments in emerging markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price. The intrinsic value of the stocks in which the portfolio invests may never be recognized by the broader market. Click here to obtain a complete list of composite descriptions or a presentation that adheres to the GIPS standards.

MSCI EAFE Index is an unmanaged, market-weighted index of companies in developed markets, excluding the U.S. and Canada. The MSCI EAFE Index net returns reflect the reinvestment of income and other earnings, including the dividends net of the maximum withholding tax applicable to non-resident institutional investors that do not benefit from double taxation treaties. MSCI uses the maximum tax rate applicable to institutional investors, as determined by the companies' country of incorporation. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.

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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