You’ll receive your new Investment Digest this afternoon. First, here’s one more Daily Alert recommendation, a value-oriented, socially-responsible mutual fund from MONEYLETTER Editor Walter Frank.
“Value investing in the style of the legendary Warren Buffet and Sir John Templeton are put to work in the Ariel family of four funds. In fact, three quotes from the aforementioned grace every fund update, including ‘Invest within your circle of competence,’ from Buffet and ‘If you buy the same stocks as everyone else, you get the same results,’ from Templeton.
“Ariel founder and portfolio manager John Rogers, along with co-managers John Miller and Kenneth Kuhrt, take these tenets to heart, while also overlying social screens in the process of investing for the long term. Ariel will not purchase companies whose primary source of revenue is derived from tobacco products or the manufacture of handguns. It also considers a firm’s environmental record and analyzes social factors. ...
“The Ariel Fund (ARGFX) team seeks to fully understand the sector and industry dynamics for each firm and how that firm fits in. The team assesses each firm’s competitive moat, and analyzes its financial position and growth prospects. Valuation is a key component of the process. Ariel calculates its own private market value (PMV) for companies under consideration. They want to buy a stock at a 40% (or greater) discount to PMV, and/or selling at a P/E of 13% or less based on forward cash earnings estimates. Assuming these hurdles are passed, the managers then ‘paint a long-term picture and identify what others are missing.’ ...
“Ariel managers have followed this strategy since the fund was founded in 1983, and garnered a strong record with a lower risk profile. Morningstar notes that from November 1992 to October 2002, the fund captured 74% of the gains of the average mid blend fund, but its superior downside protection (losing only about half as much as the average fund) resulted in strong long-term returns. The fund declined 48.3% in 2008, well into the category basement, as its deep discount stocks suffered in the flight to quality. In response, John Rogers and team have taken steps to boost overall fund quality. ... The fund’s strategy leads to a concentrated portfolio (37 stocks) that can deviate significantly from any benchmark.”
- Walter Frank, MONEYLETTER, December 7, 2012