After its founding nearly 40 years ago, Ariel became a leading Black-owned firm in Chicago and one of the city’s few significant mutual fund companies. Rogers has been at the helm all the way, building a prominent national profile with service on blue-chip corporate boards while advocating for more racial diversity in boardrooms and financial literacy among young African Americans.
Rogers, in his chief investment officer role, says he wants to stay in “the stock-picking saddle” for another decade but is signaling that he’ll step aside sooner as co-CEO, allowing Mellody Hobson, 53, also co-CEO, to “ultimately be CEO” someday. “The exact timing has not been decided,” he says, ruling out a sale of the firm, which he says is profitable, or moving its Chicago headquarters closer to Hobson’s principal residence in San Francisco.
Hobson’s profile outside Ariel is even higher than Rogers’. Married to film producer and director George Lucas since 2013, she was elevated last year to non-executive chair of Starbucks, just in time for a time-consuming CEO switch and resistance to unionizing efforts at some of its stores that could hardly have pleased Ariel’s union pension fund clients. This summer, she bought a piece of the NFL’s Denver Broncos.
At Ariel, she’s tried to capture growth in the booming sector of exchange-traded funds, but after filing with broker Charles Schwab last year to target socially and environmentally responsible investments, Ariel has attracted only $11 million so far.
Ariel’s overall assets under management have stagnated at about $16 billion as portfolio returns plummet. “Value” managers like Ariel tend to outperform growth stocks in choppy markets, and many have this year. But Ariel’s “slow and steady” mantra isn’t leading the race at the moment.
Its flagship Ariel Fund, with $2.6 billion in assets, is underperforming its small/mid-cap category and broader indexes by a wide margin this year. The $1.1 billion Ariel Appreciation Fund, oriented to small-cap stocks, is faring almost as poorly year-to-date and now lags its category in 10-year results. Along with separately managed accounts mimicking the strategies, the two funds account for about half of Ariel’s assets under management. Ariel’s international funds, managed out of New York, are performing better this year than the other funds, ranked as high as the 41st percentile, according to Morningstar.
In a memo to “friends of Ariel” last month, Rogers acknowledged the impact of recession fears on the small and midsize company stocks in Ariel’s portfolio. And in an interview, he cited a history of not owning commodity stocks as a factor in his funds’ performance, missing out on soaring commodity prices during the war in Ukraine. Ariel has been underrepresented in energy, another war-impacted sector, and overweight in others that have been hurt by the economic outlook.
“It’s been a rough go. I certainly did not expect them to be in the bottom decile,” says Morningstar analyst David Carey. “We do recognize that stock picking has not been favorable so far. It’s disappointing from that perspective, but I think they’re well suited to handle this going forward.” Rogers, he says, is “used to navigating some of these market cycles, and that helps.”
Morningstar says clients have by and large stuck with Ariel, with outflows this year in Rogers’ funds of about $190 million, or roughly 5% of assets. Clients, however, often wait until the end of the year to make decisions about hiring and firing money managers. Rogers says clients will reward Ariel because “they saw how well we did coming out of the last crisis with COVID.”
Last year, his two funds more or less tracked the market, but in 2020, they outperformed it three or four times over. “So when someone wants to get caught up in the last six months, it doesn’t make sense to us,” he says.
A major reason why Rogers’ funds track each other’s performance is their overlapping portfolios—24 stocks in common out of 38 in one fund and 42 in the other. The funds are concentrated, with only about half the number of stocks of the peer-group average. And turnover is low: Some holdings, such as real estate company JLL and advertising company Interpublic Group, date to 2001 and others have been in the portfolio almost as long.
Notwithstanding the patient investing philosophy of Warren Buffett (and his disciple Rogers), a stagnant portfolio can crimp returns when discounts to value shrink over time in a reasonably efficient market. Rogers reverses the argument, maintaining that some of Ariel’s cheapest buying opportunities already are in its portfolio. He points, for example, to Madison Square Garden Sports, despite a 28% slide in its stock since the pandemic began and one tenant, the New York Knicks, losing too many games. “If you stick with ’em and they’re strong, good companies, they come roaring back,” he says. “It’s not that we don’t make mistakes. We do,” he also says.
Rogers says he’s comfortable with the depth and vigor of Ariel’s bench and with two underlings he views as heirs apparent as chief investment officer: Director of Research Tim Fidler, 51, and Ken Kuhrt, 46, a co-portfolio manager. All the same, he says, Ariel is in talks with Annie Duke, the professional poker champion, to come aboard as an adviser on decision-making—when to hold ’em and when to fold ’em, in other words. In general, he says, “Women and people of color want to come to work at our firm. It’s going to be a huge competitive advantage over the next 30 years.”
Rogers says he retired from boards at nonprofits Rush University Medical Center, the Chicago Urban League and the Chicago Symphony Orchestra; he spent 30 years or more on each. He remains on the University of Chicago board of trustees (as vice chair) and the Obama Foundation board. He paints his service at UChicago and as a director of McDonald’s, The New York Times and Nike as a positive for his day job, allowing him to learn from other accomplished executives. He describes his 18 years as an Aon director as a tutorial, making him a better analyst of the insurance and insurance brokerage industries.
Hobson, who declined to comment for this story, doesn’t exercise control over Ariel’s investing decisions, but she does chair its publicly traded mutual funds and is responsible for the company’s management, strategic planning and growth. Outside of the firm, she chairs Chicago’s After School Matters and is vice chair of World Business Chicago, co-chair of the Lucas Museum of Narrative Art in Los Angeles, and a board member of the George Lucas Educational Foundation and the Los Angeles County Museum of Art. She’s a trustee of the Rockefeller Foundation and sits on the executive committee of the Investment Company Institute. She’s also a director of JPMorgan Chase.
In 2018, Hobson told Fast Company: “When I’m in San Francisco, on Sundays I do a whole list of calls. My first is with John Rogers, both of our chiefs of staff, and a couple of assistants, and we walk through the week that we just had and the week that is coming up. I’ve basically talked to John Rogers every day for 28 years, but Sunday is a very organized call, running through things that need follow-up. It could be as seemingly minor as a thank-you note to someone super-significant, or (maybe) he’s meeting someone and needs a briefing document.”
Says Morningstar’s Carey: “She’s got a lot on her plate, but as far as we can tell, she’s still very much involved, at least on (Ariel’s) operational side.”
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