Dividend Focus Fund
|Total Net Assets:||$60.51 Million (7/1/19)|
|Category:||Large Cap Blend|
|Benchmark:||Morningstar U.S. Large-Mid Cap|
Fund Fact Sheet Q2 2019
PM Commentary Q2 2019
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 1,197 Large Blend funds as of 7/31/19.
|As of 7/31/19||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||1.53||17.81||6.71||11.49||10.19||12.73|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||1.56||17.90||6.85||11.65||10.35||12.89|
|Morningstar U.S. Large-Mid Cap Index||1.82||20.76||8.20||13.38||11.15||14.20|
|S&P 500 Index||1.69||20.24||7.99||13.36||11.34||14.24|
|Morningstar Large Blend Category||1.38||18.91||6.02||11.70||9.42||12.14|
|As of 6/30/19||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||4.06||15.41||8.40||11.86||9.34||12.55|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||4.10||15.49||8.56||12.03||9.50||12.71|
|Morningstar U.S. Large-Mid Cap Index||4.34||18.93||10.34||14.19||10.46||14.13|
|S&P 500 Index||4.30||18.54||10.43||14.19||10.71||14.19|
|Morningstar Large Blend Category||3.81||17.21||8.20||12.53||8.76||12.06|
* Partial year. Inception to year-end.
For performance prior to 7/1/19 (Inception Date of Institutional Class), performance of the Investor Class shares is used and includes expenses not applicable and lower than those of Investor Class shares.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.
3 Year Risk Metrics
|BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 6/30/19)|
Hypothetical Growth of $10,000
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.
Record Date: September 17 | Payable Date: September 18
Record Date: December 17 | Payable Date: December 18
|(As of 6/30/19)|| |
|# of Holdings||83|
|Median Market Cap||$91.45 B|
|Weighted Average Market Cap||$246.26 B|
|3-Yr Annualized Turnover Ratio||19.01%|
|% of Holdings with Free Cash Flow||70.51%|
|30-day SEC Yield||0.77%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|The Walt Disney Co||DIS||Consumer Discretionary||2.29%|
|American Electric Power||AEP||Utilities||2.26%|
|JPMorgan Chase||JPM||Financial Services||1.91%|
|Bank of America||BAC||Financial Services||1.90%|
|Berkshire Hathaway||BRK/B||Financial Services||1.87%|
|TOP 10 HOLDINGS TOTAL||25.87%|
As of 6/30/19. 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 6/30/19. Market Cap percentages may not equal 100% due to rounding.
CAPITAL MARKET OVERVIEW
(As of 6/30/19) — The S&P 500 Index posted its best 1st half of a calendar year since 1997, rising 18.54% from January 1 to June 30. During the most recent quarter, the index was in negative territory for the first two months (April and May) then rose 7.05% in the final month, marking the best June since 1955, and finished with a return of 4.30% for the quarter.
Central banks and trade policies continued to drive financial markets during the period. The threat of increasing tariffs against China and Mexico contributed to the sell-off early in the quarter, and the June rally was largely a result of dovish central bank commentary, leading investors to anticipate rate cuts in the coming months.
The Russell 3000 Index returned 4.10% in the quarter. By style, growth outpaced value, with the Russell 3000 Growth Index up 4.50% and the Russell 3000 Value Index up 3.68%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 4.25%, just ahead of the Russell Mid Cap Index return of 4.13%. The Russell 2000 returned 2.10% during the quarter. Financials were the best performing sector, followed by Materials and Information Technology. Energy was the only sector to post a negative return, driven by a decline in oil prices. Health Care and Real Estate also underperformed relative to the broad market.
(As of 6/30/19) — The Buffalo Dividend Focus Fund posted a return of 4.06% for the quarter, slightly underperforming the Morningstar U.S. Large-Mid Cap Index return of 4.34% and the S&P 500 Index return of 4.30%. Sector weightings and security selection hindered the Fund’s relative performance. Portfolio sectors with highest weightings, Financials and Information Technology, posted positive returns and had favorable relative performance to comparable index sectors. While some of the Fund’s least weighted sectors, Materials, Energy, and Industrials (sectors comprising less than 17% of the Fund’s assets) had returns that lagged the comparable index sectors.
Specific securities that contributed most positively to performance include Microsoft (MSFT), Walt Disney (DIS) and Visa (V). Microsoft improved on growing momentum from its cloud services and enterprise products, boosting quarterly results. Disney rose on enthusiasm for its upcoming Disney+ streaming service and continued box office performance. Visa advanced on a favorable earnings release and healthy transaction volumes.
Specific securities that detracted from performance include AMC Entertainment (AMC), Halliburton (HAL), and Alphabet (GOOG). AMC fell on lagging box office results and concerns regarding its high debt leverage. Halliburton dropped due to year-over-year decline in quarterly results and a drop in oil price from its yearly high. Alphabet declined on quarterly results, which missed expectations on slowing growth in ad sales and reports the Department of Justice may open an antitrust probe.
(As of 6/30/19) — The strong gains in the stock market for the 1st half of the calendar year have been primarily driven by expansion in market valuation metrics, as earnings have been relatively flat. Aiding the valuation expansion has been The Federal Reserve’s (the “Fed”) dovish pivot on monetary policy indicating that the next interest rate action will be down. The Fed has become concerned with inflation running below their targeted levels and slowing economic growth. Vagaries regarding trade policy (tariffs and trade agreements), evolving geopolitical risks, and the divided congress further limit their forecasting abilities. A key driver for further stock market advancement is likely to be impacted by how aggressive the Fed cuts rates (0.25% or 0.50%) and how many cuts they decide to make this year.
Despite the uncertainty regarding the level of Fed action, 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.
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. Earnings growth is not representative of the fund’s future performance.
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.
The Buffalo Dividend Focus Fund (BUFDX) received 3 stars among 1,197 for the 3-year period and 3 stars among 1,064 Large Blend funds for the 5-year period ending 7/31/19.
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. ©2019 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.