John Rogers is the chairman, co-CEO and investment chief of Ariel Investments. This story is available exclusively to Insider subscribers. Become an Insider and start reading now.
Value stock picking firm Ariel Investments manages nearly $18 billion in assets.
The firm’s managers recently discussed what they’re buying in a variety of funds and strategies.
Its flagship Ariel Fund was one of the best of the 2010s bull market.
There aren’t many people on Wall Street bragging about their stock-picking successes right now, but it’s easy to get the sense that value investors are feeling good about things.
The general method of value investing — buying stocks that are cheap based on common metrics like the price-to-earnings ratio or return on equity — has a long and storied pedigree dating to investors like Benjamin Graham and including famous names like Warren Buffett. But in the 2010s, it mostly looked like a museum piece.
For more than a decade, many tech and consumer stocks made great returns no matter what their P/E ratios looked like or how well they had performed in the past. There didn’t seem to be much reason to buy undervalued stocks when something else could deliver much more explosive growth every year.
Things have looked very different since November. The economic effects of COVID-19 are easing. Interest rates are rising and it looks like they will keep going up for months. Economic growth is broader and stronger than it was for most of the last decade. All of that tends to make investors less interested in growth stocks, and it’s been great for value.
Ariel Investments was one value-oriented firm that stood out as an exception in those days. For instance, the firm’s mid-cap fund was the best in its class during the last bull market . Even so, on a call with investors and media this week, there were signs Ariel’s leaders are satisfied that value is having another moment in the sun.
President and co-CEO Mellody Hobson said the widespread losses for tech and growth were a “comeuppance.”
Chief Investment Officer for Global Equities Rupal Bhansali said, “It’s really about time that making losses is no longer fashionable.”
Granted, that might only qualify as smack talk in the investing world. But the firm, which says it had $17.8 billion in assets at the end of April, seems to feel it has the wind at its back.
“We bought aggressively during the COVID crisis,” said founder, co-CEO, and portfolio manager John Rogers . “We’ve continued to buy aggressively now during the last several weeks.”
The participants in Ariel’s call included the managers of seven mutual funds and strategies that as of April 30 were beating broad market benchmarks like the S&P 500 and Russell 2000, according to data provided by the firm. In most cases they were also outperforming value benchmarks from Russell or MSCI.
That means they were losing less money than competitors or the rest of the market. Ariel says that over time it’s delivered for investors by minimizing losses during down markets and holding steady during better periods. International stock ideas
Bhansali, who manages Ariel’s global stock strategies, says she’s finding new opportunities in emerging markets that looked too expensive and risky before the recent downturn.
“Both the stock markets and the currencies sold off, and that sort of gave us a lot of bargain-hunting opportunity,” in many of those markets, she said. “Brazilian franchise quality companies that we’ve been eyeing for a long, long time, but were never part of the valuation range and the risk reward that we look for. Telefonica Brazil , BB Seguridade in Brazil, Credicorp in Peru.”
A lot of Latin American countries are benefiting from rising commodity prices, and that’s also good for those stocks even if they’re not in commodity companies.
She adds that telecom has performed very well in her strategies this year.”Some of the companies that we have liked for a long time got sold off because of excessive pessimism, like Nintendo and China Mobile ,” she said. “Telecom is the new consumer staples.”In tech, Bhansali says that Chinese stocks will take leadership positions in areas like artificial intelligence and AI, and Baidu should be a top performer.”Because of their early and persistent and smart investments in this area, they’re going to become a leader in autonomous driving, which is one of the biggest and most lucrative applications of AI in big data,” she said. Stateside leaders Rogers says Ariel has been buying stocks in housing-related industries, which are getting hit as investors worry that […]
source Famed $18 billion value investing firm Ariel has 7 different funds beating their benchmarks or the broader market as stocks tumble. Here’s what they’re buying as growth and tech funds get a long overdue ‘comeuppance.’