Ariel Investments, an investment management firm, published its “Ariel Focus Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. Ariel Focus Fund gained +4.95% in the fourth quarter trailing the Russell 1000 Value Index which increased +7.77% and the S&P 500 Index which gained +11.03%. For the full year 2021, Ariel Focus Fund posted a strong absolute return of +21.15% but trailed both the Russell 1000 Value Index and the S&P 500 which rose +25.16% and +28.71%, respectively Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Ariel Investments, in its Q4 2021 investor letter, mentioned The Bank of New York Mellon Corporation (NYSE:BK) and discussed its stance on the firm. Founded in 1784, The Bank of New York Mellon Corporation (NYSE:BK) is a New York, New York-based corporate investment banking company with a $42.1 billion market capitalization, and is currently spearheaded by its CEO, Thomas P Gibbons. The Bank of New York Mellon Corporation (NYSE:BK) delivered a -4.79% return since the beginning of the year, while its 12-month returns are up by 12.97%. The stock closed at $52.18 per share on March 21, 2022.
Here is what Ariel Investments has to say about The Bank of New York Mellon Corporation (NYSE:BK) in its Q4 2021 investor letter:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. Smaller positions in The Bank of New York Mellon Corporation (BK) also benefited from higher rates, principally with their ability to invest customer cash.”
Our calculations show that The Bank of New York Mellon Corporation (NYSE:BK) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. The Bank of New York Mellon Corporation (NYSE:BK) was in 49 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 46 funds in the previous quarter. The Bank of New York Mellon Corporation (NYSE:BK) delivered a -2.66% return in the past 3 months.
In March 2022, we published an article that includes The Bank of New York Mellon Corporation (NYSE:BK) in the 10 Dividend Stocks Warren Buffett is Backing in 2022. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.