Ariel Appreciation Fund is part of John W. Rogers‘ Ariel Investments. The fund, co-managed by Rogers and Timothy Fidler, has a long term horizon for its investments and believes in bottom-up, fundamental analysis for stock picking. It pays equal attention to risk management to generate superior return on its portfolio. The fund was initiated in 1989 and since then has provided 10.69% in annualized returns, according to a recent letter to investors.
The letter also revealed that in the third quarter, the fund generated returns of 7% and is up by 8.48% year-to-date. In addition, the fund discussed a number of its picks, including BOK Financial Corporation (NASDAQ:BOKF), in which the fund initiated a stake during the third quarter. The fund also discussed the future potential of Kennametal Inc. (NYSE:KMT) and Lazard Ltd (NYSE:LAZ). The letter reported about various setbacks faced by its other investments including J M Smucker Co (NYSE:SJM) and Viacom Inc. (NASDAQ:VIAB).
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Kennametal Inc. (NYSE:KMT) stock appreciated by 48% so far this year, mainly due to a 32% jump registered in the third quarter. The stock also has a healthy dividend yield of 2.82%. Heading into the third quarter, Ariel Investments held 10.39 million shares of Kennametal worth $229.74 million. Of the hedge funds in our database, 20 funds held $344 million worth of Kennametal shares at the end of June. In its letter to investors, Ariel Appreciation Fund stated that Kennametal stock is expected to benefit from the company’s modernization efforts. The company is also consolidating its position by focusing on high-margin clients. Kennametal is looking to make its processes more automated, which will further enhance its profitability by cutting costs, the letter added.
Lazard Ltd (NYSE:LAZ) stock has lost over 15% since the beginning of the year. Ariel held 6.54 million shares of Lazard at the end of June, the stake being valued at $194.75 million. Among the funds we track, 18 funds held $364 million worth of Lazard Ltd’s stock in aggregate at the end of June, having amassed 9.40% of the float. In the letter, Ariel pointed out that Lazard Ltd (NYSE:LAZ) reported better-than-expected results for the second quarter mainly due to net inflows of $453 million. It also reported encouraging restructuring revenue, which made up for its sluggish advisory revenue.
In J M Smucker Co (NYSE:SJM), the fund held 1.17 million shares, down by 10% on the quarter. In its letter to investors, Ariel Appreciation Fund reported that stock suffered due to less than expected results from its acquisition of pet food company, Big Hear Pet Brands. The acquisition did not provide expected revenue or profit boost. However, the fund believes that the issue is short term in nature and the management will be able to draw better returns in the future. The number of funds from our hedge fund database long J M Smucker went up by three to 30 during the second quarter.
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In Viacom Inc. (NASDAQ:VIAB), Ariel Investments increased its stake by 34% to 3.06 million shares during the second quarter. The stock lost over 7% in the third quarter, but the fund considers that it mainly suffered on account of its management shuffle, as the company replaced its CEO Philippe Dauman with COO Tom Dooley. However, Dooley announced his resignation from the position in September. The company also slashed the quarterly dividend by 50%. However, the fund believes in the company’s long term potential. A total of 41 hedge funds from our database had positions in Viacom Inc. (NASDAQ:VIAB) heading into the third quarter.
BOK Financial Corporation (NASDAQ:BOKF) stock has climbed by 17% year-to-date. As stated earlier, the company represented a new addition to Ariel’s equity portfolio last quarter, as the fund decided to take advantage of macroeconomic headwinds caused by lower oil prices to acquire a stake in a “a conservatively managed bank with a geographic niche.” BOK Financial serves to businesses and individuals in the middle-south and Ariel considers that BOK Financial is likely to provide superior returns as its experienced management and skilled underwriting capabilities set it apart from its competitors. At the end of June, 11 of the funds we track held shares of the company, compared to 10 funds a quarter earlier.