At Ariel Investments, three qualities connect our various strategies: patience, focus and independent thinking. Our portfolios now stretch from micro-cap to large cap and range from deep value to traditional value to global, but the philosophy behind them inspires similar activity during market dislocations. That is, when stocks fall, whether across markets or within one of our portfolios, our portfolio managers and analysts get extra busy. As vigilant assessors of value, we gather information and crunch numbers to determine whether the price shifts reflect fundamental, long-term changes in what businesses are worth. If we determine gaps between price and value have widened, hence creating better investment opportunities, we will buy more shares of the companies that have been, in our view, unfairly punished.
In the first four months of 2014 some areas of the market have gained in quite normal amounts. Large caps are up +2.56% at home and +2.31% in developed markets abroad, as measured by the S&P 500 and MSCI EAFE indexes, respectively. Smaller-cap U.S. stocks, however, have had a mixed year, with some small- and mid-cap indexes up and some down; the bellwether small-cap Russell 2000 Index has fallen –2.80%. Moreover, our portfolios in the micro-cap to mid-cap range have had negative returns in the first four months of the year. We think that has created opportunities for our managers, so this month, we wanted to describe the most significant stock purchases in our smaller-cap deep value and traditional value portfolios firm-wide. Continue Reading »