Dividend Focus Fund
|Total Net Assets:||$60.54 Million (9/30/19)|
|Category:||Large Cap Blend|
|Benchmark:||Morningstar U.S. Large-Mid Cap|
Fund Fact Sheet Q3 2019
PM Commentary Q3 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 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 1,196 Large Blend funds as of 11/30/19.
|As of 11/30/19||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||6.64||24.43||13.66||12.66||9.26||12.96|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||6.62||24.56||13.80||12.82||9.41||13.13|
|Morningstar U.S. Large-Mid Cap Index||7.80||27.93||16.34||14.85||10.80||14.42|
|S&P 500 Index||7.86||27.63||16.11||14.88||10.98||14.49|
|Morningstar Large Blend Category||7.24||25.34||14.06||12.87||9.13||12.35|
|As of 9/30/19||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||2.53||18.33||3.22||11.45||9.58||12.47|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||2.62||18.52||3.43||11.63||9.76||12.64|
|Morningstar U.S. Large-Mid Cap Index||1.51||20.73||4.21||13.29||10.64||13.83|
|S&P 500 Index||1.70||20.55||4.25||13.39||10.84||13.91|
|Morningstar Large Blend Category||1.45||18.98||3.00||11.70||8.98||11.83|
* Partial year. Inception to year-end.
3 Year Risk Metrics
|BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 9/30/19)|
Hypothetical Growth of $10,000
Record Date: December 17 | Payable Date: December 18
|(As of 9/30/19)|| |
|# of Holdings||81|
|Median Market Cap||$95.26 B|
|Weighted Average Market Cap||$257.24 B|
|3-Yr Annualized Turnover Ratio||17.80%|
|% of Holdings with Free Cash Flow||68.92%|
|30-day SEC Yield||1.42%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|American Electric Power||AEP||Utilities||2.43%|
|JPMorgan Chase||JPM||Financial Services||2.14%|
|S&P Global||SPGI||Financial Services||2.08%|
|Bank of America||BAC||Financial Services||1.93%|
|TOP 10 HOLDINGS TOTAL||27.16%|
CAPITAL MARKET OVERVIEW
(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.
The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.
(As of 9/30/19) — The Buffalo Dividend Focus Fund posted a return of 2.53%, outperforming the Morningstar U.S. Large-Mid Cap Index return of 1.51% and the S&P 500 Index return of 1.70%. Sector weightings and security selection influenced the Fund’s relative performance. Portfolio sectors with highest weightings – Information Technology, Financials, and Consumer Discretionary – posted positive absolute returns and the latter two sectors had favorable relative performance to comparable benchmark sectors. Some of the Fund’s least weighted sectors – Energy and Telecommunication Services (sectors comprising less than 11% of the Fund) – had negative returns with only Telecom lagging the comparable benchmark sector.
Specific securities that contributed most positively to performance included Medicines Company (MDCO), Apple (AAPL), and Edison International (EIX). Medicines Company gained on favorable results from Phase 3 trial studies evaluating its LDL-cholesterol lowering drug, inclisiran. Apple rallied on new product announcements (iPhone 11 series) and services (Apple TV) with favorable price points. In addition, investors now expect a robust 5G phone launch next year. Meanwhile Edison International rose on passage of wildfire legislation in California and a secondary equity offering.
Specific securities that detracted from performance include Anthem (ANTM), UnitedHealth Group (UNH), and 8×8 (EGHT). Anthem and UnitedHealth Group declined on reports health insurers are paying out a higher percentage of the premiums they take in to cover patients’ medical claims (medical-loss ratio or MLR) and presidential candidates pushing forms of single payer systems or “Medicare For All”. 8×8 dropped on concerns regarding customer acquisition costs and cash flow outlook.
(As of 9/30/19) — The modest gain in the stock market for the quarter was primarily driven by investor uncertainty regarding trade policies (U.S.–China, Brexit, etc.) and the Federal Reserve’s (the “Fed”) monetary policy. The lack of agreements on major trade deals (rhetoric regarding tariffs and no deal strategies) are curtailing companies from making long-term capital spending plans, which could lead to slowing or negative growth. Certain indicators such as yield curve inversions are already signaling a recession 6-18 months out. Resolving the trade deals (especially U.S.–China) would provide companies with more certainty to make capital investment decisions, boost consumer confidence, and accelerate gross domestic product and revenue growth. Lack of progress could raise the prospects for an economic slowdown. The Fed will need to adjust their policy accordingly. During the quarter, the Fed delivered on their dovish outlook by cutting rates twice and growing the balance sheet. They indicated they are data-dependent, with trade policies creating economic uncertainties. With the federal funds rate below 2%, there is only limited ability to cut rates (before going negative). The Fed will likely have to use its balance sheet if it needs to be aggressive with its policy.
Despite the uncertainty regarding trade policies and the Fed reaction, 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. ©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.