3 / 5 Stars
Zacks Investment Research
1 (Strong Buy)
Standard & Poor's
3 / 5 Stars
U.S. News evaluated 140 Mid-Cap Blend Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
Note: Profile written for different share class.
The fund has returned 28.27 percent over the past year, 15.39 percent over the past three years, 27.75 percent over the past five years, and 8.36 percent over the past decade.
|Trailing Returns||Updated 01.31.2014|
|Year to date||-4.6%|
|3 Years (Annualized)||15.4%|
|5 Years (Annualized)||27.7%|
|10 Years (Annualized)||8.4%|
Following a patient, Warren Buffett-inspired approach to value investing, Ariel Appreciation Fund focuses on high-quality companies underpriced by the market due to some perceived risk.
As of February 05, 2014, the fund has assets totaling almost $2.03 billion invested in 42 different holdings. Its portfolio consists of mid- and large-cap domestic stocks.
Management recently picked up for-profit educator DeVry, after rumblings of industry regulation caused the stock price to tumble. “It’s pretty hard to get any more contrarian than for-profit education right now,” comanager Tim Fidler says. “But these are businesses that have all the attributes we’re looking for: very high cash flow, very clean balance sheets, very good growth, very good profitability. They’re hugely out of favor now because of the fear of government regulation, but you have a business that has net cash on the balance sheet that we think could grow easily 15 to 20 percent over the long run.” Fidler says DeVry is a good example of the firm’s investment process, which involves finding good companies with “a cloud” over them and patiently laying in wait until the price is right. “It’s a stock we’ve watched for 20 years,” he says. The fund has returned 28.27 percent over the past year and 15.39 percent over the past three years.
Because management “doesn’t give a hoot about benchmark weightings,” according to Morningstar, investors shouldn’t expect the fund to look or perform in line with its benchmark over the long term. (The fund’s performance is commonly compared with that of the Russell Midcap Value index or Russell Midcap index.) “There are periods when we’re going to look very different from the performance of the market,” Fidler says. “When the market gets really hot and heated, we’re going to underperform. But especially when things get a little dicey or tough, we’ve tended to do very well.” Over the shorter term, the fund has marginally lagged its Morningstar category, but its 15-year returns landed it, as of the end of the first quarter, in the top 15 percent of that group. The fund has returned 27.75 percent over the past five years and 8.36 percent over the past decade.
Lead manager John Rogers, and comanagers Tim Fidler and Matthew Sauer first identify quality companies that meet the fund’s criteria, then patiently wait for buying opportunities when bad news sends share prices down over the short run. “We’re not looking for what Warren Buffett would call ‘cigar butts,’” Fidler says. “We’re trying to find businesses we would want to own for the long run.”
Following Buffett’s lead, management looks for strong firms operating within stable industries. Potential picks must have some distinction, differentiation, or competitive advantage, Fidler says, which could be a well-known brand name or a cost advantage. “We identify a business that we think is very attractive, has a strong brand, strong differentiation, yet there’s a cloud over the industry,” Fidler says. “That’s where we go in and find our investments. We’re trying to find a business that meets our quality criteria and we wait until there is some dislocation or cloud over the stock, at which point we’re going to buy.”
The fund has a long-term horizon and management likes to hold on to picks for three to five years. The time factor, combined with a concentrated portfolio of only about 35 to 40 stocks, results in low turnover (typically 20 to 30 percent) and more time for management to mull buy and sell decisions. “Unlike other managers who have to make hundreds of decisions a year, we only make about six to eight buy or sell decisions per year,” Fidler says. “That gives us the luxury to do very deep research on an individual company.”
Above all, management believes the market is very efficient. “It’s very hard to outperform,” Fidler says. “There just simply aren’t that many opportunities where you can buy a stock and have a different opinion from that of the market.”
Role in Portfolio
Morningstar calls this fund a core holding.
Ariel Investments’ Chairman, CEO, and CIO John Rogers runs the show, supported by portfolio managers Tim Fidler and Matthew Sauer. Rogers founded Ariel Investments in 1983 to focus on undervalued small and medium-sized companies.
Ariel Appreciation Fund has an expense ratio of 0.80 percent.
The fund’s concentrated portfolio of about 35 to 40 stocks might make it more vulnerable to market volatility.