Dividend Focus Fund

(As of 12/31/20) — Equity markets extended their rally in the 4th quarter, with the S&P 500 Index returning 12.15%. This capped the end to a historic year in which the S&P advanced 18.40% despite the world suffering through a global pandemic. The biggest news in the quarter was the U.S. Food and Drug Administration’s (FDA) approval of two separate vaccines, following very encouraging clinical results. This helped investors look beyond worsening COVID-19 trends and provided hope that an end to the pandemic could be in sight.

The Russell 3000 Index increased 14.68% in the quarter. Value stocks led the advance, as the Russell 3000 Value Index advanced 17.21% compared to the Russell 3000 Growth Index return of 12.41% during the period. Relative performance was inversely correlated by market cap in the quarter (i.e., small caps outperformed big caps). The Russell 1000 Index delivered a return of 13.69% compared to the Russell Mid Cap Index return of 19.91%. Smaller market cap indexes surged even more as the Russell 2000 Index returned 31.37% and the Russell Micro Cap Index returned 31.39%. Cyclically-sensitive sectors such as Energy, Financials, Industrials, and Materials performed best in the quarter. The more defensive areas like Telecom Services, Consumer Staples, Utilities, and Healthcare lagged. All sectors produced positive absolute results.

(As of 12/20) — The Buffalo Dividend Focus Fund (BUFDX) posted a return of 14.61% in the quarter, outperforming the Morningstar U.S. Large-Mid Cap Index return of 13.12% and the S&P 500 Index return of 12.15%. With the exception of Real Estate and Telecommunication Services, all sectors in the Fund and benchmark index posted positive returns. The Fund’s sectors with the highest weightings (Information Technology, Health Care, and Financials) had favorable performance relative to the index. Additionally, the portfolio’s Energy, Industrials, Materials, and Utilities sectors delivered constructive performance relative to the benchmark. Consumer Discretionary, Consumer Staples, Real Estate, and Telecommunication Services detracted from the Fund’s relative performance.

Top Contributors

Specific securities that contributed most positively to performance included Cerence (CRNC), Apple Inc. (AAPL), and Walt Disney Company (DIS). CRNC (automotive voice software) rose on higher quarterly earnings and an upbeat guidance outlook. AAPL (consumer electronics and services) advanced on new product introductions and anticipated growth from 5G iPhone sales. DIS (media and entertainment) climbed on its investor presentation highlighting strong subscriber growth for its Disney+ streaming services.

Top Detractors

S&P Global (SPGI), Amgen (AMGN), and Horizon Therapeutics (HZNP) were the largest detractors from Fund performance. SPGI, a financial information services company, declined on its agreement to acquire IHS Markit (INFO), another information services company, for $39 billion of stock. AMGN, a leading biotechnology company, dropped as a late stage study showed a heart drug (omecamtiv mecabil) did not meet a secondary endpoint. HZNP, a leading biopharmaceutical company, fell after saying it expects a short-term disruption for Tepezza due to capacity constraints at its contract manufacturer, which is prioritizing production of a COVID-19 vaccine.

(As of 12/31/20) — The stock market ended the quarter at a record high on the expectations that the economy can recover from the COVID-19 pandemic. The double-digit stock market gain came despite rising cases and deaths due to COVID-19. The market favorably reacted to continued central banks’ accommodative policies, the conclusion of the U.S. presidential election, approval of COVID-19 vaccines, passage of another fiscal stimulus package, and an agreement on Great Britain’s exit from the European Union. As the new year begins the market will be focused on the change in the administration, potential for additional fiscal stimulus, vaccine rollouts, lockdowns to bend the COVID-19 curve, and how long monetary policy will remain accommodative.

Despite the uncertainty created by the pandemic, we remain focused on wide moat, large capitalization companies trading at reasonable valuations, in our view. As always, the Fund will continue to emphasize on competitively advantaged companies that can be purchased at a fair value, in our opinion. As 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.