Ariel Fund: Anixter, Janus Should Continue to Outperform

Includes: AGO, AXE, CECO, CHZ, JNS
by: SA Editors

In its most recent update for investors, managers of The Ariel Fund [ARGFX] comment on holdings:

During July, the solid gains of a few holdings bolstered overall performance. Namely, Anixter International Inc. (NYSE: AXE), a leading global distributor of communication and wiring products, rose +9.9% on strong earnings driven by double-digit revenue growth and margin expansion. We expect Anixter to continue to deliver robust results as the company expands internationally, taking on even more of its customers’ supply-chain needs. Additionally, Janus Capital Group Inc. (NYSE: JNS) was up +8.0% on strong earnings, largely because, for the first time in six years, Janus experienced positive net inflows. We believe inflows will remain positive as the market pendulum swings back in favor of growth stocks after seven years of value preference.

Conversely, a few holdings were a drag on results. Specifically, Assured Guaranty Ltd. (NYSE: AGO) slipped -17.7% after a competitor reported sharply lower earnings. Despite this disappointment, we believe the market overreacted to the subprime debacle, punishing the stock price too severely. Particularly noteworthy, is the fact that Assured Guaranty Ltd. has not insured any subprime bonds since 2003. Most importantly, the company just earned a triple-A credit rating from Moody’s, which should position it to compete for business it was previously excluded from due to its lower credit rating. H&R Block, Inc. (NYSE: HRB), the leading provider of tax services, also struggled, losing -14.6% on doubts of its ability to complete the sale of Option One, its troubled subprime mortgage division. We remain confident that the transaction will go through and in the event it does not close, Option One’s business has stabilized and shown considerable improvement this year.

During July, we exited our position in Career Education Corp. (NASDAQ: CECO) due to valuation. Also, we sold Chittenden Corp. (NYSE: CHZ) on the good news of its acquisition by People’s United Financial, Inc. at a 30% premium to the pre-announcement price. Finally, no new positions were added to the fund.