Quick Facts

(As of 3/31/17)

Ticker
  BUFDX

Inception Date
  December 3rd, 2012

Total Fund Assets
  $59.6 M

Expense Ratio
  0.98%

Benchmark Index
  S&P 500

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,248 Large Blend funds as of 3-31-2017 (derived from a weighted average of the fund’s three-, five-, and ten-year risk adjusted return measure, if applicable).

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

LOW HIGH

Overview

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
~ Scott Moore, Portfolio Manager

Performance

(As of 3/31/17)3 MOYTD1 YR3 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund6.566.5618.3211.7214.45
S&P 500 Index6.076.0717.1710.3715.11
Lipper Equity Income Funds Index4.034.0316.097.78-
Morningstar Large Blend5.575.5715.978.14-
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 3/31/17)3 MOYTD1 YR3 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund6.566.5618.3211.7214.45
S&P 500 Index6.076.0717.1710.3715.11
Lipper Equity Income Funds Index4.034.0316.097.78-
Morningstar Large Blend5.575.5715.978.14-
Each Morningstar category average represents a universe of funds with similar objectives.
YearBuffalo Dividend FocusS&P 500Morningstar Large Blend Category
201612.0611.9610.37
20150.131.38-1.46
201420.8113.6910.73
201323.9332.3931.32
2012*0.101.391.15
* Partial year. Inception to year-end.
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 3/31/17)
vs S&P 500
Upside Capture104.12
Downside Capture94.70
Alpha1.93
Beta0.93
Standard Deviation10.17
Sharpe Ratio1.14

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.

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 3/31/17)
# of Holdings90
Median Market Cap$86.49 B
Weighted Average Market Cap$157.32 B
3-Yr Annualized Turnover Ratio50.90%
30-day SEC Yield1.35%
% of Holdings with Free Cash Flow66.67%
Active Share54.08%
HoldingTickerSector% of Portfolio
Apple AAPLTechnology3.53%
Microsoft MSFTTechnology3.07%
JPMorgan Chase JPMFinancial Services2.38%
Bank of America BACFinancial Services2.09%
BB&T BBTFinancial Services2.00%
Visa VFinancial Services1.82%
Wells Fargo WFCFinancial Services1.76%
General Electric GEIndustrials1.67%
Johnson & Johnson JNJHealth Care1.65%
Royal Dutch Shell PLC ADR Class A RDS.AEnergy1.62%
TOP 10 HOLDINGS TOTAL21.59%
View Full Holdings

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 3/31/17. 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 3/31/17. Market Cap percentages may not equal 100% due to rounding.

Commentary

CAPITAL MARKET OVERVIEW

Capital markets got off to a volatile start in 2016 with the S&P 500 Index dropping over 10% and West Texas Intermediate (WTI) Crude Oil down almost 30% by mid-February. Concerns about soft Chinese economic growth contributed to equity market weakness early in the year, and the energy complex was struggling to resolve its oversupplied condition. Meanwhile, perceived “safe-haven” assets performed strongly as U.S. 10-Year Treasury notes advanced and gold appreciated over 15% during the same time frame. Economic concerns and a falling stock market led the Federal Reserve to adopt a less aggressive stance toward interest rate increases, and falling crude production eventually calmed fears of oversupply. These drivers led to a rebound in prices of both equities and crude oil and began a period of steadily rising prices and declining volatility that would continue from mid-February through the end of the year with only minor interruption. Interestingly, perceived “safe-haven” assets continued to perform strongly as gold and U.S. Treasuries rallied alongside equities into the summer and largely held those gains into the fall. The fourth quarter of 2016 began with this uneasy disequilibrium still largely intact, but sentiment changed dramatically with Donald Trump’s surprise election victory on November 8th. The election outcome created expectations of pro-growth policies and deregulation that drove accelerating gains in stock prices, higher interest rates and associated declines in the prices of both Treasury bonds and gold, all of which generally persisted through the end of 2016.

The S&P 500 index returned 11.96% for the full year. The S&P 500 Value Index outperformed the S&P 500 Growth Index by 10.5% during the year, and smaller-capitalization indices such as the S&P Smallcap 600 Index and the S&P Midcap 400 Index outperformed the large-capitalization S&P 500 Index by 14.5% and 8.77% respectively. Much of the outperformance of value stocks can be attributed to the strong performance of the Energy, Materials, and Financials sector. Outperformance of small-capitalization stocks was reflective of investor aversion to greater international exposure of larger companies in the face of a rising dollar, as well as increasingly optimistic expectations for the domestic economy and for a lower U.S. corporate tax rate following the election. For the year, Energy and Materials were the best performing sectors in the S&P 500 Index as expectations for infrastructure investment and increasing investor risk appetite following the election contributed to the reversal of prior-year underperformance that was already underway. Health Care was the worst performing sector for the year, as concerns about political backlash against rising drug prices contributed to declines in Pharmaceutical & Biotech stocks.

For the fourth quarter, the S&P 500 Index returned 3.82%. The S&P 500 Value Index outperformed the S&P 500 Growth Index by 6.86% during the quarter while smaller-capitalization indices such as the S&P Smallcap 600 Index and the S&P Midcap 400 Index outperformed the large-capitalization S&P 500 Index by 7.24% and 3.59%, respectively. Outperformance of more cyclically sensitive value stocks and small-capitalization stocks reflected some of the same drivers that were in place earlier in the year, as well as increasingly optimistic expectations for economic growth, higher interest rates and expectations of a lower corporate tax rate in the U.S. following the election. Financials were the best performing sector in the fourth quarter, benefiting from higher interest rates and expectations for a less adversarial regulatory regime under the new Republican administration. The flip side of greater risk appetite was less demand for stable, “bond-like” equities, which was reflected in the lower-risk Consumer Staples and Real Estate sectors performing poorly during the quarter. Political risk continued to put pressure on the Health Care sector, as uncertainty regarding potential for drug price regulation and repeal of the Affordable Care Act contributed to Health Care being the worst performing sector during the quarter.

PERFORMANCE COMMENTARY

The Buffalo Dividend Focus Fund posted a return of 4.40% for the 4th quarter ending 12/31/2016, outperforming the S&P 500 Index return of 3.82%. For 2016, the Fund returned 12.06% versus the S&P 500 Index return of 11.96%. For the quarter, the Fund’s relative outperformance was driven by the Consumer Discretionary, Energy, and Healthcare sectors while the top detracting sector was Financials. Top contributors on an individual security standpoint included BB&T, Bank of America, and Noble Midstream Partners while S&P Global and Activision Blizzard were the top detractors.

Within the Consumer Discretionary sector, the Fund’s relative outperformance was driven by stock selection as Marriott International advanced 23.27% and Twenty-First Century Fox gained 16.40% during the quarter. Marriott’s performance was driven by the lack of overhang from the Starwood acquisition, which was completed in late September, as well as positive pro-growth sentiment following Trump’s election as the President of the United States. Within Energy the biggest relative contributor was Noble Midstream Partners, which reported EBITDA that was 58% higher than consensus estimates during its 3rd quarter earnings call. The company’s stock also benefited from the Organization of the Petroleum Exporting Countries (OPEC) decision to cut output, which could help put a floor under oil prices.

Within Financials, an area of relative weakness during the period, most of the Fund’s holdings performed well during the quarter however S&P Global underperformed during the quarter as the company’s stock performance was impacted by the Trump election as investors fear that higher interest rates could lead to lower net issuance of bonds in which the company rates. Most of the relative shortfall within Financials was due to strong performance from index constituents that were not held in the portfolio rather than poor performance of our investments. The Fund was underweight Capital Markets, Insurance, and the Consumer Finance industries, negatively impacted relative performance as Capital Markets and Consumer Finance industries advanced 20.5% and 22.0% respectively for the benchmark.

OUTLOOK

We expect the market to experience continued volatility in the coming quarters as the Federal Reserve contemplates potential increases interest rates along with a focus on the ability of the Trump administration to enact infrastructure spending, deregulation, and corporate tax reform. 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. On the other hand, potential headwinds include a continued strengthening of the U.S. dollar, further increases in interest rates, and valuation metrics that are above historical market averages leading us to believe that the stock market may have a hard time achieving further multiple expansion.

Despite the expectation of continued volatility we continue to focus on wide moat, large capitalization companies that are 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 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.

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 RatingTM 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 RatingTM 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 5 stars among 1,248 Large Blend category funds for the three-year period ended 3/31/17.

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