John Rogers' Ariel Funds Portfolio Commentary May 2015

Month Ended May 31, 2015

With the year nearly half over, we think it is a good time to look at market leadership in the United States. Last year at this point, the story was all about large versus small, with large caps turning in much better performance. This year, the big disparity is between growth and value, with the tilt strongly toward growth stocks.

Here are the 12 Russell indexes we use as signposts:

Year-to-Date Return (as of 5/31/15)

All 12 indexes have gains for the year, with the top four being growth benchmarks. The four lowest returns come from value indexes, with the core benchmarks falling in between. This clear preference for growth fare suggests investors are optimistic and risk-embracing, as opposed to risk-averse.

Less obvious in the above chart is something we find intriguing. That is, the return gap between growth returns and value gets larger as one goes down the ladder from large caps to small caps (with mid-caps being an exception, as tends to happen). That is, in large caps, the disparity between value and growth returns was nearly 450 basis points; in small/mid-caps, it was more than 550 basis points; and in small caps, it was more than 650 basis points. Market commentators often tend to suggest there are preferences for large over small or vice versa, glossing over the reality that preferences within market cap ranges can be bigger than those between them. To suggest that investors really love small caps this year would be misleading; they seem quite fond of small growth but not small value.

An interesting takeaway from this performance data is how the American investor’s mindset has shifted in a year. Last year we noted the generally positive returns, highlighted by the biggest gains in mid- and large value and losses in small growth, suggested cautious optimism. The current picture more strongly suggests significant optimism, with gains across the board and especially in the more economically sensitive growth and small-cap areas. We are skeptical about that stance for two reasons. First, as you have no doubt seen, economic growth in the first few months of the year was softer than expected. While that is certainly not cause for alarm, a rising taste for growth when it appears to be slowing can be a recipe for losses. Second, and more importantly, as we have said before, the stock market is not especially cheap. Paying up for growth fare in a relatively pricey market is a dangerous game plan in our view.

The data also provide a helpful way to put our own portfolios’ returns in perspective. In our traditional value strategy, we seek companies that trade at a significant discount to intrinsic value and also have good earnings growth prospects. That tends to put our portfolios on the line between value and core, so it is unsurprising that Ariel Fund and Ariel Appreciation Fund have outperformed their value benchmarks this year. Ariel Focus Fund employs a similar strategy, although portfolio manager Charlie Bobrinskoy often has a greater taste for very cheap stocks—now and often putting it more in the center of the value box. So it is also not surprising that it has underperformed this year to date. Finally, Ariel Discovery Fund, a niche product investing in deep value stocks toward the bottom of the small-cap universe, has underperformed, which is not surprising, given it operates in the most unloved of the unloved areas.

The opinions expressed are current as of the date of this commentary but are subject to change. The details offered in this commentary do 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.

Investors should consider carefully the investment objectives, risks, and charges and expenses before investing. For a current prospectus or summary 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 prospectus or summary prospectus carefully before investing. Distributed by Ariel Distributors, LLC, a wholly-owned subsidiary of Ariel Investments, LLC.

Past performance is no guarantee of future results. Performance data current to the most recent month-end for Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund and Ariel Discovery Fund may be obtained by visiting our web site, arielinvestments.com. Indexes are unmanaged. Investors cannot invest directly in an index.

The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to- book ratios and lower forecasted growth values. 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 representing approximately 8% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-value ratios and higher forecasted growth values. The Russell 2000 Growth Index is constructed to provide a comprehensive and unbiased barometer for the small-cap growth segment.

The Russell 2500™ Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500™ Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2500™ Growth Index measures the performance of the small to mid-cap growth segment of the U.S. equity universe. It includes those Russell 2500 companies with higher growth earning potential as defined by Russell's leading style methodology. The Russell 2500 Growth Index is constructed to provide a comprehensive and unbiased barometer of the small to mid-cap growth market.

The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Index represents approximately 27% of the total market capitalization of the Russell 1000 companies. The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap Index companies with higher price-to -book ratios and higher forecasted growth values. The Russell Midcap Growth Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap growth market.

The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price -to-book ratios and lower expected growth values. The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Growth Index is constructed to provide a comprehensive and unbiased barometer for the large-cap growth segment.