Ariel Investments’ two biggest mutual funds outperformed their peers in the third quarter, and the Chicago-based money manager also said it plans to “remain patient” with “weak-performing” PrivateBancorp Inc.
Ariel on Tuesday released the results for its Ariel Fund, which has assets of $1.93 billion, and its Ariel Appreciation Fund, which has $1.32 billion in assets.
Ariel Fund, which invests in small- and mid-size companies, surged 18.47 percent in the quarter, compared with 11.39 percent for the Russell 2500 Value Index, 12.22 percent for the Russell 2500 Index and 11.29 percent for the broader Standard & Poor’s 500.
It also outperformed them over a one-year period.
“While the crowd believed Americans’ discretionary spending would fall across the board, we felt some consumer discretionary companies would hold up well,” the firm said in its report. Sotheby’s, Royal Caribbean Cruises and Interpublic Group, which was helped by an advertising uptick, were cited as standout performers.
But while financial services companies are generally in better shape than they were two years ago, some stocks remain weak, and “several tough years” could lie ahead, particularly at smaller banks, Ariel said.
Its portfolio includes Chicago-based PrivateBancorp, which has lost 53 percent, and asset manager Janus Capital, down 22 percent.
But “we do not believe either franchise is impaired and plan to remain patient as they recover,” Ariel said.
PrivateBancorp ended the quarter trading at $11.39, with a 52-week trading range of $8.33 to $24.98.
Its Ariel Appreciation Fund, which invests in “undervalued” stocks, rose 16.1 percent in the quarter, compared with 12.13 percent for the Russell Midcap Value Index and 13.31 percent for the Russell Midcap Index.
It also slightly outperformed its peers for the year.
A couple of the fund’s health care stocks, including Deerfield-based Baxter International, have been suffering due to uncertainty over health care reform and to consumers delaying medical procedures.
“Baxter International, which fell 14.29 percent, suffered due to overall pessimism toward the area as well as doubts specifically about its franchise,” Ariel said. “We think a pickup in procedures is bound to occur,” however.
Baxter’s stock ended the quarter at $47.71 a share, near the lower end of a 52-week trading range of $40.25 to $61.88.
A third fund, the $50 million-asset Ariel Focus Fund, outperformed its peers for the quarter but slightly lagged for the year. Its third-quarter performance was helped by a large stake in Hewitt Associates, which was acquired by Aon Corp. Also doing well was Illinois Tool Works.
A new addition to that fund is Walgreen.
