Quarter Ended September 30, 2020
2020 has been quite the year thus far: a pandemic, the shutdown of a global economy, a subsequent collapse in equity markets, social unrest, political dysfunction and environmental catastrophes. Despite this backdrop, the U.S. equity market soared to record highs this summer before September's volatility set. High unemployment, income losses, weaker consumption, indecision in Washington around further fiscal relief and U.S. election uncertainty have blurred the path ahead. Yet, it's important to be mindful that equities continue to receive meaningful support from record levels of stimulus, sustained ultra-low interest rates and the Federal Reserve's decision to target average inflationary growth. While we expect volatility to remain elevated through the new year, we believe the U.S. economy will continue its V-shaped recovery as restrictions ease and we begin to see further positive progress on a vaccine.
For the quarter, Ariel Fund advanced +4.56%, ahead of the similarly positioned Russell 2500 Value Index's gain of +3.54%, but trailing the Russell 2500 Index, which returned +5.88%.
Some holdings in the portfolio advanced considerably this quarter. Leading entertainment company, ViacomCBS Inc. VIACwas a top contributor in the quarter. Shares are benefitting from solid earnings results driven by revenue growth across advertising, content licensing and further momentum in the company's streaming initiatives. While we recognize cord-cutting impacts fundamentals, we believe premium video content is the most valuable part of the media ecosystem. Based on our sum of the parts analysis, VIAC is currently trading 33% below our estimate of private market value. At today's valuation, we continue to believe VIAC's risk/reward is skewed to the upside.
Toy manufacturer, Mattel, Inc. MAT also advanced in the period on better than expected earnings results. Demand at retail exhibited the resilience of the company's brands, while e-commerce continues to build momentum heading into the holiday season. MAT also delivered gross margin improvement for the second sequential quarter. Looking ahead, we believe the company has sufficient liquidity to navigate the COVID-19 operating environment and remain encouraged by management's successful execution on the Structural Simplification plan and cost savings initiatives. We have conviction in the leadership team's ability to transform MAT into an IP-driven, high performing toy company.
Financial advisory and asset manager Lazard Ltd. LAZ was another contributor in the quarter. As the leader in cross-border M&A advisory in Europe, LAZ has begun to see a broad-based pick up in strategic dialogues, boding well for activity levels in a region where businesses have reopened quicker than the U.S. Furthermore, on the premise that central banks will begin to roll back stimulus in both the U.S. and Europe in 2021, management expects restructuring activity to reach historical levels. Lastly, investor demand for LAZ's quant and fundamental products across its global, multi-regional and emerging market platforms have driven strong gross flows.
There were a few notable performance detractors in the quarter. Global leader in for-profit education, Adtalem Global Education ATGEtraded materially lower following its announcement to acquire Walden University from Laureate Education in an all-cash transaction. Investors are concerned this action will reduce the company's financial flexibility from a net cash to net debt position, ahead of a potential democratic shift in Washington. While the headwinds are near-term in nature, we believe the acquisition is expected to be accretive. The combined company will be number one in undergrad and graduate nursing enrollment in the U.S. and the largest producer of African-American MDs, PhDs and nurses in the country.
Shares of Core Laboratories NV CLB, the premiere provider of reservoir description and production enhancement services in the oil and gas industry, also declined in the quarter. Despite the challenging operating environment, management delivered earnings results that were slightly ahead of adjusted expectations. However, COVID-19 related disruptions and delays in existing projects are expected to pressure margins near-term. In response, CLB is executing on prudent enhancements to the existing cost reduction plan, which include limiting cash outflows to achieve its free cash flow targets and reducing debt levels. Looking ahead, we believe the headwinds this asset-light business is experiencing will soften and expect CLB to experience modest growth in reservoir description. We also think CLB will see increased activity in fracturing rock, which should increase output in well completions and fuel longer term growth of the production enhancement sector.
Lastly, Jones Lang LaSalle JLL underperformed in the quarter, as the pandemic has been a significant headwind for commercial real estate transaction activity. While management withdrew the 2020 outlook for its brokerage segment, we believe the company's diverse business model and annuity like non-transaction revenue mix, such as corporate outsourcing will help offset weakness in the cyclical leasing business. For instance, customers are engaged with JLL to discuss bringing employees back to their office spaces, including potential space re-configurations, increased cleaning and security and more advisory and technology-led solutions. Meanwhile, the company is prudently managing expenditures across its operating business lines to preserve cash. At current levels, the company is trading at a 37% discount to our estimate of private market value.
We initiated a position in niche banking services provider, BOK Financial Corporation BOKFin the quarter. BOKF provides commercial and consumer banking, investment and trust services, mortgage origination and servicing. We took advantage of weakness in share price following the company's disclosure of a larger than expected loan loss provision driven by negative credit migration in the energy loan book. We believe BOKF's balanced business model between banking (60% of revenues) and fee service businesses (40% of revenues) allows the company to serve more of their clients' needs while reducing volatility in financial results. In our view, the macro low rate environment will prove to be less important for BOKF than the positive impact of its diversified business model, underwriting disciplines and the experienced management team led by Chairman and majority owner George Kaiser.
Short term corrections and market volatility remain headwinds in the near-term. FAANG1 stocks have dominated the rally in recent months and their concentration and elevated valuations, as well as the U.S. election outcome poses risks to the broader market. While meaningful to current market sentiment and conversation, we view these risks as short-term noise within the context of our long- term investment horizon. We retain a "glass half full" outlook and believe the economy will continue its recovery with the support of a dovish Fed, easing restrictions and positive COVID-19 vaccine developments. Meanwhile, we stand ready to take advantage of any pull backs in the market on negative news. We strongly believe the dedicated, contrarian, patient investor that stays the course and consistently owns differentiated business models with solid competitive positioning and robust balance sheets will deliver superior returns over the long-run.
1 FAANG is comprised of Facebook Inc., Apple Inc., Amazon,com Inc., Netflix Inc. and Alphabet Inc.
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.
