Dividend Focus Fund
|Total Net Assets:||$101.00 Million (3/31/21)|
|Category:||Large Cap Blend|
|Benchmark:||Morningstar U.S. Large-Mid Cap|
Fund Fact Sheet Q1 2021
PM Commentary Q1 2021
FUND OBJECTIVE & INVESTMENT PROCESS
The investment objective of the Buffalo Dividend Focus Fund is primarily current income, with long-term growth of capital as a secondary objective.
To pursue its investment objective, the Fund invests in dividend-paying equity securities, consisting of domestic common stocks, preferred stocks, and convertible securities. During normal market conditions, at least 80% of the Fund’s assets will be invested in dividend-paying equity securities, companies that declare and pay cash dividends on at least an annual basis.
While the Fund may invest in securities of companies of any size, the Fund managers expect the majority of common stocks purchased will be of large-cap companies, those with market capitalizations in excess of $10 billion at the time of initial purchase. In addition to investments in domestic securities, the Fund may invest up to 20% of its net assets in sponsored or unsponsored ADRs and securities of foreign companies that are traded on U.S. stock exchanges.
We are focused on buying dividend-paying companies that can have sustainable competitive advantages, generate strong return on capital and free cash flow, have conservative balance sheets, and have great management teams.
We seek to buy these companies at reasonable valuations and believe that holding them for the long-term will generate favorable risk adjusted returns.
Paul Dlugosch, Portfolio Manager
Overall Morningstar Rating™ of BUFDX based on risk-adjusted returns among 1,224 Large Blend funds as of 4/30/21.
|As of 4/30/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||12.90||11.00||44.04||16.60||15.41||14.47|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||12.89||11.04||44.26||16.77||15.58||14.64|
|Morningstar U.S. Large-Mid Cap Index||12.22||11.25||48.42||19.28||17.77||16.28|
|S&P 500 Index||12.98||11.84||45.98||18.67||17.42||16.12|
|Morningstar Large Blend Category||12.83||11.94||46.51||16.71||15.87||13.86|
|As of 3/31/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||5.36||5.36||54.29||14.99||14.32||13.91|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||5.40||5.40||54.52||15.16||14.49||14.08|
|Morningstar U.S. Large-Mid Cap Index||5.56||5.56||59.31||17.33||16.64||15.73|
|S&P 500 Index||6.17||6.17||56.35||16.78||16.29||15.57|
|Morningstar Large Blend Category||6.74||6.74||56.80||14.87||14.80||13.37|
3 Year Risk Metrics
|BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 3/31/21)|
Hypothetical Growth of $10,000
- Record Date (6/17/21); Payment Date (6/18/21) – Ordinary Income & Capital Gains, if any
- Record Date (9/17/21); Payment Date (9/20/21) – Ordinary Income & Capital Gains, if any
- Record Date (12/2/21); Payment Date (12/3/21) – Capital Gains, if any
- Record Date (12/17/21); Payment Date (12/20/21) – Ordinary Income, if any
|(As of 3/31/21)|| |
|# of Holdings||87|
|Median Market Cap||$62.25 B|
|Weighted Average Market Cap||$360.57 B|
|3-Yr Annualized Turnover Ratio||24.31%|
|% of Holdings with Free Cash Flow||64.47%|
|30-day SEC Yield||0.98%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|UnitedHealth Group||UNH||Health Care||2.15%|
|Horizon Therapeutics||HZNP||Health Care||1.98%|
|Viper Energy Partners||VNOM||Energy||1.91%|
|S&P Global||SPGI||Financial Services||1.85%|
|TOP 10 HOLDINGS TOTAL||26.84%|
CAPITAL MARKET OVERVIEW
(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.
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.
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.
We get to know the companies we invest in and learn how they run their business.
Top-Down & Bottom-Up
We identify Top-Down broad, secular growth trends and search for companies from the Bottom-Up.
We construct our portfolios based on our own proprietary investment strategy.
Sticking to our disciplined investment strategy ensures we maintain a consistent, balanced approach.
The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating™ for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating™ metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
In each Morningstar Category, the 10% of funds with the lowest measured risk are described as Low Risk, the next 22.5% Below Average, the middle 35% Average, the next 22.5% Above Average, and the top 10% High. Morningstar Risk is measured for up to three time periods (three, five, and 10 years). These separate measures are then weighted and averaged to produce an overall measure for the fund. Funds with less than three years of performance history are not rated. ©2021 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style Box™ reveals a fund’s investment strategy by showing its investment style and market capitalization based on the fund’s portfolio holdings.