Ticker
  BUFDX

Inception Date
  December 3, 2012

Total Fund Assets
  $61.34 Million  (9/30/18)

Expense Ratio
  0.95%

Benchmark Index
  Morningstar U.S. Large-Mid Cap

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,196 Large Blend funds as of 9/30/18 (derived from the fund’s three- and five-year risk adjusted return measure).

INVESTMENT STYLE

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.

RISK VS CATEGORY

 

LowHigh

The Morningstar™ Risk vs Category rating is an assessment of the variations in a fund’s monthly returns, with an emphasis on downside variations, in comparison to the 1,196 funds in the Large Blend category, as of 9/30/18.

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Investment Strategy

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.

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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

Performance (%)

As of 9/30/183 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
BUFFALO DIVIDEND FOCUS FUND7.688.8515.8815.2113.6614.14
  Morningstar U.S. Large-Mid Cap Index7.4810.6117.8616.9113.6815.56
  S&P 500 Index7.7110.5617.9117.3113.9515.66
  Lipper Equity Income Funds Index5.554.6710.4413.6310.2812.21
  Morningstar Large Blend Category6.678.4215.3515.1711.9313.44
As of 9/30/183 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
BUFFALO DIVIDEND FOCUS FUND7.688.8515.8815.2113.6614.14
  Morningstar U.S. Large-Mid Cap Index7.4810.6117.8616.9113.6815.56
  S&P 500 Index7.7110.5617.9117.3113.9515.66
  Lipper Equity Income Funds Index5.554.6710.4413.6310.2812.21
  Morningstar Large Blend Category6.678.4215.3515.1711.9313.44

* Partial year. Inception to year-end.

vs Morningstar U.S. Large-Mid Cap Index
(As of 9/30/18)
Upside Capture90.29
Downside Capture94.35
Alpha-0.16
Beta0.91
Sharpe Ratio1.68

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower of higher than the performance quoted and can be obtained here. Performance is annualized for periods greater than 1 year. Each Morningstar category average represents a universe of funds with similar objectives.

As of July 27, 2018 the Morningstar U.S. Large-Mid Cap Index has replaced the S&P 500 Index as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

Growth of $10k

This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund on the Inception Date. Assumes reinvestment of dividends and capital gains. This chart does not imply future performance.

Portfolio

(As of 9/30/18) 
 
# of Holdings88
Median Market Cap$84.31 B
Weighted Average Market Cap$236.56 B
3-Yr Annualized Turnover Ratio24.52%
30-day SEC Yield1.38%
% of Holdings with Free Cash Flow71.26%
HoldingTickerSector% of Net Assets
MicrosoftMSFTTechnology4.21%
VisaVFinancial Services2.90%
AppleAAPLTechnology2.86%
JPMorgan ChaseJPMFinancial Services2.73%
Bank of AmericaBACFinancial Services2.42%
BB&TBBTFinancial Services1.99%
Twenty First Century FoxFOXAConsumer Discretionary1.89%
American Electric PowerAEPUtilities1.84%
S&P GlobalSPGIFinancial Services1.78%
Berkshire HathawayBRK/BFinancial Services1.77%
TOP 10 HOLDINGS TOTAL24.39%
View Full Holdings

As of 6/30/18. Top 10 Holdings for the quarter are not disclosed until 60 days after quarter end. Those listed are for the previous quarter. Fund holdings are subject to change and are not recommendations to buy or sell any securities.

Buffalo publishes this listing of securities held as of the most recent calendar-quarter end, with a 30 or 60 day lag depending on the portfolio. Buffalo may exclude any portion of holdings from publication when deemed in the best interest of the portfolio.

The portfolio data and its presentation here may differ from the complete schedules of investments in regulatory filings due to differing accounting and reporting requirements.

As of 9/30/18. Security weightings are subject to change and are not recommendations to buy or sell any securities.
Sector Allocation may not equal 100% due to rounding.

As of 9/30/18. Market Cap percentages may not equal 100% due to rounding.

Commentary

CAPITAL MARKET OVERVIEW

(As of 6/30/18) — Supportive economic data drove positive domestic equity performance in the 2nd quarter. The unemployment rate declined to 3.8%, the lowest level in 18 years. Wages have continued to rise, with average hourly earnings up 2.7% as of May. Corporate earnings growth continued to be robust. The Federal Reserve increased their target rate by 0.25% and raised their forecast for growth and inflation again in June. Meanwhile, economic growth outside the U.S. slowed, with the divergence driving strength in the U.S. dollar. Increasing trade protectionism along with the dollar’s strength, led to the relative outperformance of domestically focused industries and smaller capitalization companies, which generally do less international business than large caps. Crude oil prices continued to rise, despite the strong dollar, driven by lower stockpiles in the U.S. and President Trump’s decision to withdraw from the Iran nuclear accord.

The Russell 3000 Index returned 3.89% in the quarter. Growth continued to outpace value, with the Russell 3000 Growth Index up 5.87% and the Russell 3000 Value Index up 1.71%. By size, the Russell Microcap Index led the way with a return of 9.97%, followed by the small cap Russell 2000 Index at 7.75%. The large cap Russell 1000 Index was up 3.57%, and the Russell Midcap Index was up 2.82%. Energy was the best performing sector, driven by strength in crude oil prices. The Consumer Discretionary, Information Technology, and Real Estate sectors also had strong quarters. Meanwhile, trade fears and rising input costs caused the underperformance of Industrials, and Financials were weaker as a result of the yield curve flattening.

PERFORMANCE COMMENTARY

(As of 6/30/18) — The Buffalo Dividend Focus Fund posted a return of 3.18% for the quarter, which slightly underperformed the S&P 500 Index return of 3.43%. While disappointing, the modest underperformance this quarter is not surprising given continued strong outperformance of growth over value. The Fund’s relative underperformance was primarily a result of portfolio positioning decisions and security selection within the Information Technology sector. The Fund was underweight technology during the period, and that area was one the best performing sectors within the index. We reduced some exposure to the cyclical semiconductor industry during the quarter, which caused a larger underweight position than we had entering the period. Relative performance was also negatively impacted by several non-dividend payers within the benchmark like Facebook, which produced strong returns during the quarter.

The Health Care sector was another area of modest weakness for the portfolio during the period. The two biggest detractors were McKesson and CVS Health Corporation. Both of these stocks were negatively impacted on concerns that Amazon will enter their markets and investors fear that development could result in pricing pressure and lost market share for both companies.

Overall the top contributors on an individual security basis were Twenty-First Century Fox, Microsoft, and Hess Corp while Carnival, Bank of America, and JPMorgan were the top detractors.

OUTLOOK

(As of 6/30/18) — We expect the market to experience continued volatility in the coming quarters as the Federal Reserve continues to normalize interest rates. Other concerns include inflation growth acceleration, potential strengthening of the U.S. dollar, geopolitical issues, and increasing protectionism efforts from the White House. Valuation metrics are also above historical market averages, leading us to believe the stock market may have a hard time achieving further multiple expansion. On the other hand, prospective tailwinds for the economy include further job growth, wage increases, lower tax rates, and simply more optimism from both businesses and consumers; all of which could lead to higher Gross Domestic Product (GDP) growth.

Despite the expectation of continued volatility, we continue to focus on wide moat, large capitalization companies trading at reasonable valuations, in our view. As always, the Fund will continue to focus on competitively-advantaged companies that can be purchased at a fair price, in our opinion. As the stock market has continued to climb, it is getting harder to find companies that fit our investment criteria, but we continue to follow our process of finding new investment ideas and to be ready when market declines provide better opportunities.

The opinions expressed are those of the Portfolio Manager(s) and are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security. Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Earnings growth is not representative of the fund’s future performance.

Fundamental Approach

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.

Proprietary Philosophy

We construct our portfolios based on our own proprietary investment strategy.

Disciplined Investing

Sticking to our disciplined investment strategy ensures we maintain a consistent, balanced approach.

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FOR INDIVIDUAL INVESTORS

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.

The Buffalo Dividend Focus Fund received 3 stars among 1196 for the three-year period and 4 stars among 1058 Large Blend funds for the five-year period ending 9/30/18.

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.

©2018 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.