Dividend Focus Fund
|Total Net Assets:||$90.79 Million (12/31/20)|
|Category:||Large Cap Blend|
|Benchmark:||Morningstar U.S. Large-Mid Cap|
Fund Fact Sheet Q4 2020
PM Commentary Q4 2020
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 1,230 Large Blend funds as of 1/31/21.
|As of 1/31/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||14.77||-1.68||14.62||9.73||14.05||13.24|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||14.87||-1.63||14.86||9.91||14.23||13.41|
|Morningstar U.S. Large-Mid Cap Index||15.11||-0.87||19.79||12.62||16.70||15.17|
|S&P 500 Index||14.05||-1.01||17.25||11.70||16.16||14.91|
|Morningstar Large Blend Category||14.45||-0.80||15.44||9.63||14.44||12.63|
|As of 12/31/20||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||14.61||16.64||16.64||12.23||13.33||13.63|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||14.66||16.83||16.83||12.41||13.51||13.80|
|Morningstar U.S. Large-Mid Cap Index||13.12||21.11||21.11||15.02||15.63||15.47|
|S&P 500 Index||12.15||18.40||18.40||14.18||15.22||15.23|
|Morningstar Large Blend Category||12.81||15.83||15.83||11.89||13.39||12.88|
3 Year Risk Metrics
|BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 12/31/20)|
Hypothetical Growth of $10,000
- Record Date (3/17/21); Payment Date (3/18/21) – Ordinary Income & Capital Gains, if any
- 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 12/31/20)|| |
|# of Holdings||84|
|Median Market Cap||$64.62 B|
|Weighted Average Market Cap||$400.13 B|
|3-Yr Annualized Turnover Ratio||23.12%|
|% of Holdings with Free Cash Flow||68.49%|
|30-day SEC Yield||0.88%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|S&P Global||SPGI||Financial Services||2.33%|
|UnitedHealth Group||UNH||Health Care||2.19%|
|Horizon Therapeutics||HZNP||Health Care||1.95%|
|TOP 10 HOLDINGS TOTAL||27.65%|
CAPITAL MARKET OVERVIEW
(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.
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.
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.
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.