Investments in foreign securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving foreign economies and markets, foreign political systems, foreign regulatory standards, and foreign currencies and taxes. The use of currency derivatives and exchange-traded funds (ETFs) may increase investment losses and expenses, and create more volatility. Investments in emerging and developing 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 Fund invests may never be recognized by the broader market.
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains, and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the period ended December 31, 2015, the average annual total returns of Ariel Global Fund (Investor Class) for the 1 -year and since-inception periods were +0.36% and +9.24%, respectively. Ariel Global Fund has an inception date of December 30, 2011, and does not have performance for the 5- and 10-year periods. As of September 30, 2014, Ariel Global Fund’s Investor Class had an annual net expense ratio of 1.29% and an annual gross expense ratio of 3.70%. As of September 30, 2015, Ariel Global Fund’s Investor Class had an annual net expense ratio of 1.25% and an annual gross expense ratio of 2.71%. Effective February 1, 2014, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees or reimburse expenses (the "Expense Cap") in order to limit Ariel Global Fund's total annual operating expenses to 1.25% of net assets for the Investor Class through the end of the fiscal year ending September 30, 2017. Performance data current to the most recent month-end for Ariel Global Fund may be obtained by visiting our website, arielinvestments.com.
Quarter Ended December 31, 2015
The fourth quarter of 2015 was a positive end to a mixed year for equities. The three flagship indexes tracking our asset classes all rose nicely. Specifically, the large-cap S&P 500 Index rose +7.04%, the small-cap Russell 2000 Index gained +3.59%, and the large-cap, developed-market MSCI EAFE Index advanced +4.71%. These quarterly results continued an intriguing pattern for the year: domestic small caps and international large caps tracked each other more closely than either one of them paralleled domestic large caps. A large/small split or a domestic/foreign divide would make sense, but the pattern from 2015 is a bit confusing from an economic, fundamental basis. That said, in equities returns can stem from sentiment or understandings of risk and growth rather than fundamentals: the theme of “risk on” versus “risk off” sometimes tells the story. From that angle, the performance pattern does follow. It seems investors were moderately optimistic in the first half of the year, fairly fearful in the third quarter, but hopeful in the final three months.
This quarter, Ariel Global Fund gained +5.26%, ahead of the MSCI ACWI Index’s +5.03% gain.
Some of our holdings posted solid gains for the quarter. Internet search provider Baidu, Inc. (BIDU, Financial) outperformed after reporting better-than-expected quarterly earnings and announcing a $2 billion share buyback, rising +37.57% for the quarter. We continue to admire Baidu’s business strategy shift toward mobile and locally-focused services such as movie tickets, home delivery and car services. As such, we have been adding to our position. Computing giant Microsoft Corp. (MSFT, Financial) gained +25.95% after reporting continued growth and operating momentum in cloud-based businesses such as Azure cloud and Office 365. The company also benefitted as it guided to lower-than-expected expenses for the full year. We continue to hold the shares.
Other holdings fell amidst the volatility the past three months. Intellectual property and patent expert Acacia Research Corp. (ACTG, Financial) stock fell -52.14% when it lost a lawsuit that many had expected it to win. In our view, Acacia lost the first trial because the jury lacked intellectual patent knowledge. We believe a favorable verdict is merely delayed and not permanently lost; the lawsuit will be refiled in Germany, where it will be decided by a panel of judges who have technical expertise. We have added to the shares because we remain confident in the original thesis. Chinese telecommunications giant China Mobile Ltd. (CHL, Financial) slipped -4.91%1 amidst broad weakness in Chinese equites and due to concerns over its own slowing customer growth. We think the company’s fundamentals remain solid, so we have been adding to our position.
Although it may not bring immediate emotional (or financial) rewards, a flat or softly down year in a long, rising market can be a good thing. So long as there is economic growth, as there was in 2015—such a pause means stocks are cheaper at year-end than they were at the beginning. So, we enter 2016 with the same basic view we held entering 2015 as well as 2014. That is, we are confident and optimistic about U.S. fundamental growth and slightly cautious about the valuation of domestic stocks. Overseas, we think there is a more fundamental risk—especially in China—but we see international stocks broadly as less expensive. Taken altogether, that means we see a “stock-picker’s market” where choosing individual securities within a set of stocks has greater potential to contribute more strongly to returns than the choice of one set of stocks over another. Of course we always embrace the philosophy of long-term investing and strongly prefer it to any attempt to time the market or seek out turning points, bottoms, tops, and so forth.
This commentary candidly discusses a number of individual companies. These opinions are current as of the date of this commentary but are subject to change. The information provided in this commentary does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security.
As of 12/31/15, Baidu, Inc. ADR constituted 6.3% of Ariel Global Fund; Microsoft Corp. 6.2%; Acacia Research Corp. 0.7%; China Mobile Ltd. 3.0%; and China Mobile Ltd. ADR 2.0%. Portfolio holdings are subject to change. The performance of any single portfolio holding is no indication of the performance of other portfolio holdings of Ariel Global Fund.
The Russell 2000® Index measures the performance of the small- cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. Russell® is a trademark of Russell Investment Group, which is the source and owner of the Russell Indexes’ trademarks, service marks and copyrights. The S&P 500® Index is the most widely accepted barometer of large cap U.S. equities. It includes 500 leading companies. MSCI ACWI (All Country World Index) IndexSM is an unmanaged, market weighted index of global developed and emerging markets. The MSCI ACWI 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 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.
Investors should consider carefully the investment objectives, risks, and charges and expenses before investing. For a current summary prospectus or full prospectus which contains this and other information about the funds offered by Ariel Investment Trust, call us at 800-292-7435 or visit our website, arielinvestments.com. Please read the summary prospectus or full prospectus carefully before investing. Distributed by Ariel Distributors LLC, a wholly owned subsidiary of Ariel Investments LLC.
1 The return for China Mobile Ltd. represents a blended return of China Mobile Ltd. (-4.69%) and China Mobile Ltd. ADR (-5.33%).
