John W. Rogers Jr.’s socially responsible Ariel Fund beat or nearly met its benchmarks using Warren Buffett’s “moats” concept, according to Ariel Investments’ semiannual report released at the end of the first quarter.
Results for Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, and the newest entry in the firm’s stable, the Ariel Discovery Fund, did not always meet their benchmarks. But returns were uniformly positive.
As of March 31, the value of an investment in the Ariel Fund, the oldest of the four at 25 years, beat or nearly met its benchmarks, providing average annual returns of 25.63% over the last year, compared with 22.67% for the Russell 2500 Value Index, 26.12% for the Russell 2500 Index, and 15.65% for the S&P 500. Rogers (left, and click here for video) is Ariel Fund’s lead portfolio manager, and John P. Miller is portfolio manager.
Rogers, who is also chairman and CEO of Ariel, and Mellody Hobson, president, wrote in a letter to shareholders about the concept of “moats” as being vital in the evaluation of companies considered for the fund:
When we attempt to analyze the long-term prospects of any business, the strength of the moat takes center stage and weighs heavily on our assessment and outlook. As Warren Buffett once told Fortune magazine, “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”
The letter goes on to discuss the fund’s holdings of both Fair Isaac (FICO) and Zimmer Holdings, a medical device company that is a new addition to the fund.