With an ever-so-slight recent change of ownership control, the Chicago-based Ariel Investments, well-known globally for its ESG-sensitive strategies, has come up with a new acronym of sorts to compete with the ubiquitous ‘FANG’. The new word is: ‘MANG’.
Micky Jagirdar, Ariel senior v.p. and head of the investment group for international and global equities, said on a visit to Australia last week that that the FANGs (Facebook, Apple, Netflix, Google) tend to have “heady but unsustainable” growth in the consumer discretionary sector. The MANGs (Michelin, Ahold Delhaize, NTT Docomo, Glaxo Smith), while hardly being household names, on the other hand, are consumer staples with “steady and sustainable” growth.
By the way, according to ‘The Economist’ newspaper’s style book, an acronym needs to sound the same as a generally used word. Therefore, ‘FANG’ is an acronym but ‘MANG’ is only a grouping of initials. Perhaps that’s a good thing for a value-orientated investor.
Jagirdar says that the FANGs tend to have unknown risks, often to do with potential litigation and new regulation, whereas the MANGs tend to have known risks most often to do with competition. Also, the average P:E ratio of the FANGs in the US is 29 times. The P:E ratio for the MANGs is 14 times.
“The key difference between us and our peers,” he says, “is that we hang our hats on the competitive advantage of our stocks. Our peers tend to over-index. We also have a greater willingness to have patience and think long term.”
As a value-orientated manager, Ariel has tended to underperform other styles of active managers – the main ones being growth, momentum and quality – over the past several years, both in Australia and globally. But, Jagirdar says that “intrinsic value” is what is most important rather than simplistic “price-to-book” or similar other measures.
“Valuations are a function of the price of equities relative to bonds and therefore interest rates,” he says.
Ariel looks to identify sustainable value and competitive advantages and what is the monetised potential of a company. “We also look at the way the Street [Wall Street] might be discounting the stock. That gets us to the core of what we call ‘intrinsic value’,” he says.
In a shareholder restructure in July this year, Mellody Hobson, the firm’s president and public face for the past several years, bought an extra 14 per cent of the company from founder and mentor John Rogers, to become the largest shareholder of the privately held firm, with 39.5 per cent, and co-CEO.
In her spare time, Hobson is a political activist in the Chicago region, lobbying for the rights of the underprivileged and, mainly, black sectors of the community. Chicago has the highest rate of gun violence of any city in the US.
Meantime, Ariel has performed well in the recent market climate, outperforming most of its peers. Over the longer term, too, Jaghirdar argues, Ariel’s philosophy and strategy are setting the firm up, on behalf of its clients, to allow that intrinsic value to shine through.