Dividend Focus Fund

(As of 3/31/19) — Equity markets rebounded sharply to start 2019. The widely followed S&P 500 Index returned 13.65% in the 1st quarter, its best quarterly performance in 10 years. The market advance can be largely attributed to the Federal Reserve’s decision to put quarterly short term interest rate hikes on hold and end its balance sheet runoff. Additionally, prospects for a trade agreement between the U.S. and China appeared to improve, and the U.S. Government reopened after its longest shut down in history.

The Russell 3000 Index advanced 14.04% in the 1st quarter. Growth outperformed value, with the Russell 3000 Growth Index returning 16.18% compared to a return of 11.93% for the Russell 3000 Value. By size, midcaps led the way this quarter with the Russell Midcap Index returning 16.54%, followed by a return of 14.58% for the small cap Russell 2000 Index and 14.00% for the large cap Russell 1000 Index. Technology, Real Estate, and Industrials were the best performing sectors, while Health Care and Financials were relative underperformers.

(As of 3/31/19) — The Buffalo Dividend Focus Fund posted a return of 10.90%, underperforming the Morningstar U.S. Large-Mid Cap Index return of 13.99% and the S&P 500 Index return of 13.65%. Sector weightings and security selection hindered the Fund’s relative performance. The Fund’s highest weighted sectors (Financials, Health Care, and Information Technology) posted positive returns, however, they lagged returns relative to comparable index sectors. On the other hand, some of the Fund’s least weighted sectors (Energy, Real Estate, and Utilities – comprising less than 14% of Fund assets) had returns greater than the comparable index sectors.

Top Contributors
Specific securities that contributed most positively to performance included Microsoft, Visa, and Apple. Microsoft improved on growing momentum from its cloud services and enterprise products. Visa advanced on a favorable earnings release and healthy transaction volumes. Apple rose on positive earnings relative to expectations and prospects for continued growth in its services business.

Top Detractors
Specific securities that detracted from performance included CVS Health Corp., CME Group, and AbbVie Inc. CVS fell on weak earnings forecast due to rising costs, poor results from its Omnicare unit, and integration with its recent purchase of Aetna. CME Group dropped primarily due to lower trading volumes and reduced volatility levels. AbbVie declined on weaker than expected results and concerns regarding generic completion for its top selling drug (Humira).

(As of 3/31/19) — After experiencing consecutive quarters of double-digit markets moves (one negative and one positive), we expect the market to encounter continued volatility in the coming quarters, as the Federal Reserve has paused rate increases and future actions are expected to be data dependent. Other market concerns include inflation expectations, potential strengthening of the U.S. dollar, vagaries regarding protectionism efforts from the Administration, evolving geopolitical risks, slowing economic growth and prospects for a recession to develop, rising energy prices, and the divided Congress. Valuation metrics, while off recent highs, are still above historical market averages, leading us to believe the stock market may have a difficult time achieving further multiple expansion. On the other hand, prospective tailwinds for the economy include further job growth, wage increases, lower tax rates, and robust business and consumer confidence, all of which could lead to higher Gross Domestic Product (GDP) growth.

Despite the expectation of continued volatility, we remain focused on wide moat, large capitalization companies that are competitively advantaged and trading at reasonable valuations, in our view. If stock market volatility spikes, we will look for opportunities to find companies that fit our investment criteria, as we continue to follow our process of finding new investment ideas and to be ready when market declines provide better entry points.