Why Small-Cap Value Still Matters: Lessons from John Rogers' Q3 2025 Ariel Portfolio

In an era where the allure of high-flying technology stocks has dominated investor attention, the enduring appeal of small-cap value investing remains a compelling counter-narrative. The Q3 2025 13F filing by Ariel Investments, a firm synonymous with contrarian value strategies, offers a masterclass in how disciplined, long-term thinking can unlock alpha in overlooked corners of the market. As the U.S. equity market enters a maturing cycle, the lessons from Ariel's portfolio and the insights of its founder, John Rogers, underscore why small-cap value remains a vital component of a diversified investment approach.

Ariel's Q3 2025 Portfolio: A Blueprint for Contrarian Value

Ariel Investments' Q3 2025 13F filing reveals a portfolio valued at $9.35 billion, a 5.99% increase from the prior quarter. The firm's strategy, rooted in its four tenets-Active Patience, Focused Expertise, Independent Thinking, and Bold Teamwork-continues to prioritize long-term value creation over short-term trends according to Ariel's philosophy. The portfolio's top 10 holdings account for 31.7% of assets, with a heavy concentration in sectors such as Financials (19.8%), Consumer Discretionary (22.03%), and Industrials (14.31%) as reported in the filing.

Notable additions in Q3 2025 include Prestige Consumer Healthcare Inc. (PBH) and Paramount Skydance Corporation (PSKY), reflecting Ariel's focus on undervalued businesses with durable cash flows. Conversely, the firm reduced its stake in Paramount Global (PARA) by $159.48 million and Resideo Technologies (REZI) by $97.52 million, signaling a shift away from overvalued names. These moves align with Ariel's proprietary Ariel Investment Model (AIM), which emphasizes valuation metrics, business momentum, and sustainability factors according to the firm's strategy.

Sector Allocations and the Case for Concentration

Ariel's sector allocations highlight its willingness to diverge from broad market benchmarks. For instance, the 19.8% allocation to Financials contrasts with the sector's underrepresentation in many large-cap indices, where technology's dominance has skewed valuations. Similarly, the 22.03% exposure to Consumer Discretionary-a sector often overlooked during growth booms-positions Ariel to benefit from cyclical rebounds in spending as noted in the Q3 filing.

The firm's concentrated approach is further evidenced by its top holdings, including Sphere Entertainment Co (SPHR), which alone accounts for $372.36 million of the portfolio according to holdings data. Such concentration, while inherently riskier, allows Ariel to capitalize on deep sector expertise and asymmetric risk-reward profiles. This strategy paid off in Q3 2025, as the Small Cap Concentrated Value Composite returned +15.08% gross of fees, outperforming the Russell 2000 Value Index and the broader Russell 2000 Index (+12.39%).

John Rogers on Small-Cap Value: A Philosophy for the Long Term

John Rogers, Ariel's co-founder and chairman, has long championed small-cap value investing as a bulwark against market excesses. In 2025, he reiterated his conviction that small value stocks-often dismissed as "mundane"-are "particularly orphaned these days" according to Rogers' commentary amid a frenzy for high-profile growth names like Nvidia and Apple. Rogers argues that this neglect creates fertile ground for value creation, particularly in sectors such as industrials, consumer services, and regional banking, where tangible assets and stable cash flows are undervalued.

His bullish commentary is not mere rhetoric. Ariel's Q3 2025 purchases, including The Walt Disney Company (DIS) and The Middleby Corporation (MIDD), reflect a strategic bet on companies with strong balance sheets and mispriced fundamentals as reported in the filing. Rogers' emphasis on "Active Patience" underscores his belief that markets often overcorrect, creating opportunities for patient investors willing to hold through volatility.

The Case for Small-Cap Value in 2026

As 2026 approaches, the maturing market cycle presents both challenges and opportunities for value investors. The current environment-marked by rising interest rates and a shift in consumer behavior toward experiential spending-favors businesses with pricing power and operational resilience according to Rogers' analysis. Small-cap value stocks, often domiciled in sectors like industrials, consumer discretionary, and financials, are well-positioned to benefit from these trends.

Ariel's Q3 2025 portfolio changes illustrate this dynamic. The firm's increased exposure to Paramount Skydance Corporation, for example, signals confidence in the long-term value of entertainment assets amid the streaming transition as detailed in the Q3 filing. Similarly, its reduced holdings in Resideo Technologies highlight a willingness to cut losses in sectors facing structural headwinds.

Conclusion: Reclaiming the Value Premium

The data from Ariel's Q3 2025 filing and Rogers' strategic insights make a compelling case for rethinking small-cap value investing. In a world where growth stocks have commanded outsized valuations, the disciplined, bottom-up approach of firms like Ariel offers a path to outperformance. By focusing on mispriced companies with durable business models, investors can harness the power of compounding and sector-specific expertise to navigate a maturing cycle.

As Rogers aptly notes, the "ugly ducklings" of the market-those overlooked small-cap value stocks-may yet become the swans of 2026. For investors willing to embrace contrarian thinking, the rewards could be substantial.