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Ariel Goes Abroad

Ariel International marks the firm’s first foray into foreign-stock investing. It has been a performance success so far.

Rob Wherry, 10/07/2015

In most issues, Undiscovered Manager profiles a manager on the Morningstar Prospects list, which is compiled by Morningstar’s manager research group.

Many investors began bailing on Nintendo in 2012, when its new gaming console, Wii U, failed to score big sales with consumers. But the legendary Japanese company has been making a comeback of sorts the past few years. It has successfully moved into the smartphone space, launched the popular new game “Splatoon”—a shooter game without the violence of “Call of Duty”—and it has cut costs, all of which have helped the company’s earnings improve after losses in 2012 and 2014. Investors are taking notice: The shares have more than doubled since bottoming out in early 2013, as profit expectations have surged.

Rupal Bhansali has patiently waited out that turnaround. As portfolio manager of Ariel International AINTX, she initiated a position in the stock when the fund was launched in early 2012 and has added to it since then. Through lengthy interviews with Nintendo’s management, Bhansali and her team grew confident that the company was developing a sensible approach to dealing with the changing video game market. The due diligence paid off, and Nintendo is now one of the fund’s best performers.

For investors familiar with Ariel Investments, Bhansali’s patience shouldn’t come as a surprise. The firm has a 32-year history of implementing a low-turnover, value-investing strategy. Its logo is even a tortoise clutching an oversized trophy. For most of the firm’s history, that process was focused on domestic stocks. But Bhansali’s fund represents an effort to apply it to international investing. While her strategy isn’t an exact replica of the one used at other Ariel funds, she does share a knack for investing without much regard to a benchmark and for buying stocks trading at deep discounts to their intrinsic values. These stocks are often mispriced because investors have been scared off by bad news. That’s when Bhansali and her team get interested. That thinking has generating a 12% annualized return the past three years, landing the fund in the top 5% of the foreign large-value category.

“We’re not surprised by that outcome,” she says. “Our process always pays attention to not just return management, which is what can go right and how much will a stock go up, but what can go wrong and how much we can lose.”

Road to Becoming a Fund Manager
Bhansali’s investment career has its roots in her native India. Her childhood bedroom served as a home office for her father, a stockbroker, and she routinely overheard him talking about investments with his clients. She came to the United States in 1991 on a Rotary Foundation scholarship and studied at the University of Rochester, in New York, where she received her Masters of Business Administration degree.

Post graduation, Bhansali’s professional career started at investment firm Crosby Securities pitching emerging-markets stock ideas to clients such as Soros Fund Management and Tiger Management, among others.

“Back in the day, there was no research published on emerging markets because it was a nascent class. Not only did I have to come up with long ideas, but I had to write research on short ideas because of the client base,” she says.

Rob Wherry is a mutual fund analyst with Morningstar.

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