At The Motley Fool, we understand that it often pays to zig when the rest of Wall Street zags. Like us, hedge funds rarely move in lockstep with the broader market. By tracking these little-followed funds' buy and sell decisions, we can often gain valuable insights into opportunities the market might be missing.

Every quarter, any fund managers overseeing more than $100 million must publicly disclose their quarter-end holdings with the Securities and Exchange Commission's Form 13-F. It lists all U.S.-traded securities the fund's manager held at the end of the quarter. Although the form doesn't disclose short positions or intraquarter trades, it can illuminate long stock bets.

To better decipher this 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that develops investment strategies based on hedge funds' public disclosures.

Meet Ariel Capital Management
John Rogers is the founder and chairman of Ariel Capital Management. The fund company was founded in 1983. The total market value of Ariel Capital Management's disclosed equity holdings as of March 31 -- the latest quarter for which data is available -- was $5.7 billion across 116 holdings.

Why should you care? Because according to AlphaClone's back-test simulation, if you'd invested in Ariel's 20 top holdings as they were disclosed publicly each quarter, you would have earned a total return of 412.6% between January 2000 and now, versus just 18.7% for the S&P 500.

The fund's 10 largest positions (by value) and associated share-count changes as of March 31 were:

  1. Gannett (NYSE: GCI) – reduced 2.1%
  2. DeVry (NYSE: DV) – increased 2.45%
  3. Jones Lang Lasalle (NYSE: JLL) – reduced 3.5%
  4. CBS (NYSE: CBS) – reduced 17.9%
  5. Lazard (NYSE: LAZ) – increased 2.8%
  6. Mohawk Industries (NYSE: MHK) – reduced 2.2%
  7. Bio-Rad Laboratories (NYSE: BIO) – reduced 2.3%
  8. Janus Capital (NYSE: JNS) – increased 0.3%
  9. Interpublic Group (NYSE: IPG) – reduced 5.2%
  10. Zimmer Holdings (NYSE: ZMH) – increased 138.5%

Outside the top 10 holdings:

  • Rising Positions: The fund increased its positions in Fair Isaac and J.M. Smucker.
  • Falling Positions: The fund reduced its exposure to International Game Technology and Royal Caribbean.
  • Eliminated Positions: During the quarter, the fund sold out of four stock positions, including Beckman Coulter and LabCorp.

Selected Q1 2011 commentary
Ariel Capital Management has a concentrated portfolio, with 46% of the portfolio invested in services companies. Financials also make up a significant amount of the portfolio at 16%. Here's where the firm is winning and losing, and making new bets, at the moment.

  • Current winner: Jones Lang Lasalle and Interpublic Group did well, both increasing 19% in the first quarter.
  • Current loser: Janus Capital fell 4% during the first quarter.
  • New bets: Ariel's biggest new additions include First American Financial and Madison Square Garden, which comprise 1.2% and 0.5% of the total portfolio, respectively.

So there you have it -- the blow-by-blow of Ariel Capital Management's latest moves. Tell us what you think in the comments section below.

Company data provided by AlphaClone LLC, a San Francisco-based research and investment-management firm that tracks hedge-fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.


Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance, and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.

The Motley Fool owns shares of International Game Technology, Zimmer Holdings, and Madison Square Garden. Motley Fool newsletter services have recommended buying shares of LabCorp, Jones Lang Lasalle, and First American Financial. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.