Dividend Focus Fund

(As of 3/31/21) — Equity markets continued to move higher in the 1st quarter of 2021, with the S&P 500 Index returning 6.17%. The period was marked by outperformance of value stocks as the market rotation that began in the last quarter of 2020 became even more pronounced. The vaccination rollout, combined with prospects for more fiscal stimulus, bolstered optimism towards companies that could benefit from the economy reopening. Additionally, an 80+ basis point move higher in the 10-Year U.S. Treasury yield during the quarter left sentiment towards growth stocks relatively more subdued.

The broad market Russell 3000 Index advanced 6.35% in the quarter. Value outperformed growth for the second straight quarter, with the Russell 3000 Value Index up 11.89% compared to the Russell 3000 Growth Index returning 1.19%. Relative performance was inversely-correlated with market cap size in the quarter, with the Russell Micro Cap Index up 23.89%, the small cap Russell 2000 Index up 12.70%, the Russell Midcap Index up 8.14%, and the large cap Russell 1000 Index returning 5.91%. The more cyclically-sensitive Energy, Financial, and Industrial sectors performed best in the quarter. Consumer Staples, Information Technology, and Utilities were the bottom three performing sectors. All sectors produced positive returns.

(As of 3/31/21) — The Buffalo Dividend Focus Fund (BUFDX) posted a return of 5.36% in the quarter, underperforming the Morningstar U.S. Large-Mid Cap Index return of 5.56% and the S&P 500 Index return of 6.17%. With the exception of the portfolio’s Information Technology, Real Estate, and Utilities holdings, all sectors in the Fund and the benchmark Morningstar U.S. Large-Mid Cap Index posted positive returns. Portfolio sectors with the highest weightings (Information Technology, Health Care, and Financials) had mixed performance relative to the Index. Health Care and Financials had favorable performance, while Information Technology produced negative relative performance. The portfolio’s Communication Services, Consumer Discretionary, Consumer Staples, Energy, Industrials, and Materials sectors delivered constructive performance relative to the benchmark. The Fund’s Real Estate and Utilities holdings detracted from relative performance.

Top Contributors

Investments that contributed most positively to performance were Viper Energy Partners LP (VNOM), Horizon Therapeutics (HZNP), and Bank of America (BAC). Viper (oil and gas mineral interests) rose as energy prices moved higher on more balanced supply/demand and prospects for an economic rebound. Horizon (biopharmaceuticals) advanced on U.S. Food and Drug Administration (FDA) approval for increased manufacturing capacity for Tepezza (a thyroid eye disease drug), strong quarterly earnings, and acquisition of Viela Bio (VIE). Bank of America (financial services) climbed on rising interest rates, strong underwriting and trading revenues and prospects for an economic recovery.

Top Detractors

Apple (AAPL), Qualcomm (QCOM), and Viatris (VTRS) detracted from the Fund’s performance. After more than doubling in the past year, shares of Apple declined modestly on a cautious guidance, sector rotation, and concerns regarding increased regulation for big technology. Shares of Qualcomm (semiconductors and telecommunications equipment) fell after missing quarterly estimates hurt by near term supply constraints. Viatris (pharmaceutical) dropped after issuing guidance that was below Wall Street expectations.

(As of 3/31/21) — The S&P 500 Index achieved a record high during the period and ended just below the intra-quarter peak. The rise can be attributed to the expectation that the economy can recover from the COVID-19 pandemic. New COVID-19 infections, hospitalizations, and deaths have declined in the U.S. as vaccines have been approved and injected into arms. The market favorably reacted to the new administration, passage of additional fiscal stimulus, and the central banks’ continued accommodative policies. Although the Federal Reserve continues to indicate that interest rates increases are on hold for the near future, the longer end of the treasury market sold off on concerns that inflation will increase. The rise in bond yields resulted in some market rotation as investors shifted from growth to value sectors. As the year continues to unfold, investors will be focused on the administration’s recently announced infrastructure proposal, vaccine rollouts, COVID-19 related reopening, and the length of accommodative monetary policy.

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 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.