John Rogers’ Ariel Global Fund 3Q15 Commentary

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John Rogers’ Ariel Global Fund commentary for the third quarter ended September 30, 2015.

Equities had a difficult quarter across regions, market cap ranges and styles. The U.S. large-cap S&P 500 Index fell -6.44%, the U.S. small-cap Russell 2000 Index dropped -11.92%, while the international, developed large-cap MSCI EAFE Index slid -10.23%. There was significant narrative fuel for the fire: worries that a slowing Chinese economy would spur a global economic slowdown; hand-wringing over the timing of the U.S. Federal Reserve’s likely interest rate increases; and fretting over falling commodity prices. As a result, many types of stocks have “corrected,” a term that tends to inspire fear and worry despite the potential upside corrections create.

This quarter, Ariel Global Fund fell -7.48%, ahead of the MSCI ACWI Index’s -9.45% return.

Ariel Global Fund – Portfolio Performance

Some of our holdings held up relatively well in the very difficult quarter. Utilities firm Southern Co. jumped +7.56% after reporting quarterly earnings that beat expectations and management’s previous guidance. Southern also raised guidance for the third quarter above consensus expectations. The company’s results were primarily driven by growth in customer load (which measures demand in the utilities field) as well as rate increases. We think the company’s fundamental improvement is likely to continue. Wireless infrastructure expert Ruckus Wireless, Inc. gained +14.89% after reporting better-than-expected second quarter earnings. Sales and margins beat expectations, and management guided third quarter sales above analysts’ estimates. The company saw strength across many of its business segments and a rebound in its education vertical driven by higher spending. We continue to hold the shares.

Other holdings underperformed in the falling market. Internet search firm Baidu, Inc. fell -30.98% after reporting weaker-than-expected second quarter earnings and guiding third quarter sales below analysts’ consensus. Baidu is improving its search engine capabilities by investing in mobile and more locally-focused services such as movie tickets, home delivery and car services. We have been adding to our position. Biotechnology leader Gilead Sciences, Inc. dropped -15.90% on recent concerns over drug pricing. Gilead actually reported quarterly earnings that were better than expected. We continue to hold the shares, based on our belief that the market is overly focused on pricing and underestimating future sales that we think are likely to grow.

We do not share the pessimistic view that has sidelined many investors. Again, a stock market correction typically means equities are cheaper. Given our previously-expressed concern that stock prices were becoming a bit stretched, we do not mind seeing the market’s aggregate valuation level drop. Moreover, given the volatility and resulting price dislocations, our view is that more bargains are at hand. We encourage long-term investors to remain rational, avoid panic, and stick to a sensible asset allocation strategy.

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 09/30/15, Southern Co. constituted 3.9% of Ariel Global Fund; Ruckus Wireless, Inc. 1.4%; Baidu, Inc. ADR 5.1%; and Gilead Sciences, Inc. 7.3%. 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.

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