Ticker
  BUFDX

Inception Date
  December 3, 2012

Total Fund Assets
  $59.38 Million  (3/31/18)

Expense Ratio
  0.96%

Benchmark Index
  S&P 500

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,156 Large Blend funds as of 5/31/18 (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 1,156 funds in the Large Blend category, as of 5/31/18.

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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 5/31/183 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund-0.690.4410.027.9112.6113.39
  S&P 500 Index0.192.0214.3810.9712.9814.99
  Lipper Equity Income Funds Index-0.29-1.209.267.819.6711.82
  Morningstar Large Blend0.061.1813.029.1111.3412.90
As of 3/31/183 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund-2.03-2.038.518.3712.9713.31
  S&P 500 Index-0.76-0.7613.9910.7813.3114.90
  Lipper Equity Income Funds Index-2.63-2.638.987.9510.1411.90
  Morningstar Large Blend-0.98-0.9812.828.8911.7212.85
YearBuffalo Dividend FocusS&P 500Morningstar Large Blend Category
201718.0221.8320.44
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.
(As of 3/31/18)

vs S&P 500
Upside Capture87.29
Downside Capture100.46
Alpha-1.41
Beta0.92
Sharpe Ratio0.81

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.

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 3/31/18)

# of Holdings86
Median Market Cap$88.16 B
Weighted Average Market Cap$200.64 B
3-Yr Annualized Turnover Ratio37.50%
30-day SEC Yield1.49%
% of Holdings with Free Cash Flow70.93%
Active Share53.66%
HoldingTickerSector% of Net Assets
AppleAAPLTechnology4.19%
MicrosoftMSFTTechnology3.38%
JPMorgan ChaseJPMFinancial Services2.48%
Bank of AmericaBACFinancial Services2.35%
VisaVFinancial Services2.32%
American Electric PowerAEPUtilities2.08%
BB&TBBTFinancial Services1.82%
Berkshire HathawayBRK/BFinancial Services1.75%
Wells FargoWFCFinancial Services1.66%
BoeingBAIndustrials1.59%
TOP 10 HOLDINGS TOTAL23.62%
View Full Holdings

As of 12/31/17. 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 3/31/18. 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 3/31/18. Market Cap percentages may not equal 100% due to rounding.

Commentary

Commentary for Q1 2018   (As of 3/31/18)

CAPITAL MARKET OVERVIEW

(As of 3/31/18) — The long streak of low volatility and positive stock market returns ended in the 1st quarter of 2018. Strong gains in January were erased in February and March, leaving the S&P 500 Index down 0.76% for the quarter. Volatility as measured by the Cboe Volatility Index (VIX) was up about 80% in the 1st quarter after falling for the last three years. Investor worries about increasing interest rates, possible trade wars, and threatened government action against large technology companies offset generally strong economic data and corporate earnings growth.

PERFORMANCE COMMENTARY

(As of 3/31/18) — The Buffalo Dividend Focus Fund posted a loss of 2.03% for the quarter, underperforming the S&P 500 Index return of -0.76%. The Fund’s relative underperformance was primarily driven by the Information Technology, Consumer Discretionary, and Health Care sectors, which was partially offset by outperformance in the Financials and Real Estate sectors. The top contributors on an individual security standpoint were Microsoft, S&P Global, and Intel while Kraft Heinz, Parker Hannifin, and Shire were the top detractors.

Within the Information Technology sector, the Fund’s relative underperformance was driven by stock selection as well as an underweight in the best performing benchmark sector during the quarter. Specific securities that detracted from performance within Information Technology included Qualcomm and Broadcom. Qualcomm declined due to the U.S. government’s decision to block the merger with Broadcom, as well as litigation with Apple, Inc. Broadcom declined due to the aforementioned failed merger attempt with Qualcomm and 2018 financial guidance which disappointed some investors. Strong performance from certain non-dividend payers that are included in the Index but not in the Fund, such as Adobe and Salesforce.com, also detracted from relative results with the sector.

Underperformance within the Consumer Discretionary sector was primarily due to strong performing non-dividend paying companies, Amazon and Netflix, that are included in the Index but not in the Fund based on our dividend requirement. Other detractors within the consumer area included Fund holdings Comcast and Wal-Mart. U.S cable giant Comcast declined on fears the company will overpay for its potential acquisition of the British pay-TV group Sky PLC, as well as on fears around subscriber losses. The acquisition of Sky could also add new challenges as it operates in new international markets and increases the company’s balance sheet leverage. Meanwhile, Wal-Mart declined after reporting weaker-than-expected online sales for the 4th quarter of 2017 as well as challenged margins.

The underperformance within Health Care was primarily due to security selection. The Ireland-based pharmaceutical company Shire PLC was the worst performer within our Health Care portfolio, but shares of McKesson and Zimmer also pulled back during the period. Shire’s decline reflected several factors including new competition to several key products (e.g., Roche in Hematology and generic competition for Lialda) as well as some underwhelming product launches. Zimmer declined after investors received news from the new management team that turnaround plans for the company might take longer than previously expected. Finally, McKesson declined on the announcement of a potential competitive joint venture with Amazon/Berkshire Hathaway/JP Morgan that investors viewed unfavorably and on government threats of legal action associated with opioids and generic pricing.

OUTLOOK

(As of 3/31/18) — Going forward, we continue to have a consistent message in that we will look for companies that we believe:

  1. exhibit long term sustainable competitive advantages;
  2. have a history of growing their revenues, earnings, and dividends;
  3. generate significant amounts of free cash flow;
  4. have rock solid balance sheets;
  5. have management teams who exhibit stellar capital allocation skills whose interests are aligned with shareholders;
  6. and whose shares are trading at an adequate discount to our estimate of fair value.

As the market has moved up and multiples have expanded over the last few years, it has become more difficult to continue to find undervalued companies. We continue to search for companies that meet our criteria for purchase and sell those that no longer exhibit the qualities we desire.

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 2 stars among 1156 for the three-year period and 4 stars among 1033 Large Blend funds for the five-year period ending 5/31/18.

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.