John Rogers' Ariel Global Fund 2nd Quarter Commentary

For the second quarter in a row, investors will likely remember the harrowing ride better than the end result. That is, domestic stocks posted solid gains and foreign shares had relatively mild losses. In the meantime, however, there was Brexit. On June 23, 2016 the British people shocked the world by voting for the United Kingdom to exit the European Union—an enormously complex and economically risky decision. As you know, the market hates uncertainty. And so in response, foreign stocks plummeted - 10%, small caps dove -7%, and large caps sank -5%. But once investors fully digested the news, stocks jumped back up—nearly erasing their losses in the U.S. Overseas the short-term damage from Brexit still showed; the financial-heavy value indexes significantly lagged the core and growth indexes. In the end, U.S. value fare outpaced growth stocks for the second quarter in a row—definitively ending a very long run of outperformance from the growth side.

This quarter, Ariel Global Fund dipped -0.29%, just below the MSCI ACWI Index’s +0.99% return.

Some of our holdings performed well during the quarter. Medical giant Johnson & Johnson (JNJ, Financial) rallied +12.66%, due to a strong earnings report. In April the company beat analysts’ estimates and also raised guidance for the year. Earnings were driven by strong sales of drugs like Stelara and Xarelto. At this point pharmaceuticals are the company’s largest business division—ahead of powerhouses such as medical devices and consumer health products. We think the trajectory of the business continues to point upward. In addition, GlaxoSmithKline plc (GSK, Financial) rallied +7.74%1 in the second quarter, after reporting profit growth for the first time since 2013. Glaxo is seeing benefits from its purchase of Novartis’ vaccines unit. Demand for vaccines and new drugs helped offset declines in the sales of blockbuster asthma medication Advair.

Other holdings experienced a short-term struggle. Baidu, Inc. (BIDU, Financial) shares fell -13.48% in the second quarter. Chinese regulators opened an investigation on news that a university student died after using the site to find alternative treatments for cancer. Baidu implemented changes, such as capping the number of ads per page to 30% and establishing a 1 billion yuan fund to fight fraud. Also, Harman Intl Industries, Inc. (HAR, Financial) fell -19.07% in the second quarter, after a disappointing earnings report. The company missed estimates and also lowered its full-year guidance. Results in its professional unit were considerably weaker, down more than 5% from a year earlier. We continue to think the shift toward “infotainment” will turn the brand around.

All things considered, our outlook has remained stable over the course of the quarter. In the U.S., we think very little has changed. The economy continues its slow-growth progress, and the market largely reflects that reality. So we remain confident, seeing pockets of opportunity as well as areas that seem a bit expensive. Overseas, risks are clearly higher. In Europe there is likely turmoil as governments begin revamping trade agreements and businesses adjust to a European Union without Great Britain. On the other hand, there is certainly a chance that another referendum will overturn the June 23rd vote and shred all the planned changes. The next-largest foreign risk remains the same: China‘s economy continues to show signs of trouble. Still, in foreign markets we see pockets of opportunity and with the greater potential for change there is a corresponding set of potential opportunities.

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 6/30/16, Johnson & Johnson constituted 4.5% of Ariel Global Fund; GlaxoSmithKline plc 2.2%; GlaxoSmithKline plc ADR 3.4%; Baidu, Inc. ADR 5.0%; and Harman Intl Industries, Inc. 3.4%. 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.

MSCI ACWI (All Country World Index) Index 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 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.

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 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 June 30, 2016, the average annual total returns of Ariel Global Fund (Investor Class) for the 1 -year and since-inception periods were -0.55% and +8.68%, 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, 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.