This story appears in the February/March 2023 issue of Forbes Magazine. Subscribe
The veteran value investor’s flagship Ariel Fund was up 14% in January after taking a hit in 2022. Now he is betting big on entertainment, private equity and — surprise! — housing.
In an era when dyed-in-the wool value investing strategists have been pushed aside for sexier growth and quantitative managers, John W. Rogers Jr.’s patient contrarian approach has proven resilient in the aftermath of multiple market storms.
Rogers, the founder and co-CEO of Ariel Investments, started the firm in 1983 just three years after graduating from Princeton. Forty years later, the oldest Black-owned investment firm in the U.S. manages more than $16 billion in assets. Most of that is in mutual funds and separately managed accounts, though $1.45 billion is in a new private equity fund dubbed Project Black. The brainchild of his co-CEO Mellody Hobson, the new fund aims to buy existing mid-size businesses and install Black and Latino executives who can build them into top tier suppliers to the S&P 500. (Read more about Hobson and Project Black here.)
Meanwhile, Rogers remains Ariel’s chief investment officer and stock-picker. His flagship $2.5 billion Ariel Fund was launched in 1986, making it the longest-running fund in Morningstar’s mid-cap value category. Since inception, it has posted a 10.5% average annual return, slightly better than both the Russell 2500 Value Index and the S&P 500. But those figures don’t do justice to his firm’s penchant for stellar performance as stocks recover from ugly bear markets—like the kind investors endured in 2022.
Ariel Fund faced its first test on October 19, 1987, the crash known as Black Monday. The then-29-year-old Rogers frantically called clients and brokers while meeting with his wedding planner. His message: Stocks were suddenly cheap, and investors should buy more. Ariel outperformed with double-digit gains in 1987.
Coming out of the dot-com bust in 2000, the Ariel Fund was up big again, returning 29% that year and 14% in 2001. During the 2008 financial crisis, Rogers’ bets on stocks like real estate investment firm CBRE Group and newspaper publisher Gannett caused the fund to suffer a 48% loss—before fueling a 63% gain in 2009.
Last year was another rough one for the Ariel Fund: It fell 19%, compared with a 13% drop for its benchmark Russell 2500 Value Index, largely because it has few energy stocks (which were winners in 2022) and is more heavily weighted toward sectors like media and entertainment, which underperformed. It’s a hazard that comes with Rogers’ high-conviction and high-concentration investing style—39% of the fund is invested in his top 10 holdings. In January, the fund was up 14%, outperforming the S&P 500’s 6% gain.
“This storm is the worst since ’08 and ’09. There are so many extraordinary bargains,” says Rogers, who got hooked on investing at age 12, when his father started giving him stock for his birthday and Christmas. His affinity for buying unloved equities was further nurtured at Princeton, where economist Burton Malkiel, author of the investment classic A Random Walk Down Wall Street, became a mentor.
Rogers’ favorite pick these days is Ariel’s largest holding, Madison Square Garden Entertainment, now trading at a price-to-book ratio of only 0.89. He cites the staying power of its iconic venues like the Garden itself and Radio City Music Hall and gets excited talking about the MSG Sphere, a $2.2 billion entertainment venue set to open in Las Vegas later this year. Plus, he thinks Wall Street undervalues MSG Network, its regional cable network that broadcasts New York Knicks and Rangers games. “Someday, the Knicks are going to win again,” says the former Princeton basketball team captain who once bested Michael Jordan in a one-on-one game.
Another Rogers holding is Paramount Global. The CBS parent still enjoys high viewership for its live sports broadcasts and 60 Minutes, and its Paramount Plus service is the streaming home for last year’s hit movie Top Gun: Maverick and this year’s upcoming Mission: Impossible. “Sumner Redstone always talked about the fact that content is king, and his daughter Shari believes in the exact same thing,” Rogers says. He adds that investors are so focused on the streaming wars, they’re underestimating the worldwide reach of Paramount and the value of its brands, which include BET Networks and Showtime. “They’re going to figure out a way to monetize this great content.”
Outside of media and entertainment, Rogers favors financial-services stocks like investment bank Lazard, which Ariel has owned since 2009, and private equity firm The Carlyle Group. He likes the consistent fees generated by private equity—KKR was a big winner for Ariel before it got too large for its small- and mid-cap funds and he cashed out.
A contrarian sector Rogers is betting will surprise to the upside in the next few years is housing. Ariel has a position in flooring company Mohawk Industries and recently repurchased shares of Generac, which manufactures power generators. Generac was a standout performer during the pandemic, and Ariel made a fourfold profit on it between February 2019 and December 2020. Now, with Generac down 80% from its October 2021 peak, Rogers thinks it’s ripe for a rebound, with concerns about climate change and power outages caused by hurricanes and wildfires spurring customers to buy its generators.
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