Dividend Focus Fund
|As of 9/29/2022|
|Total Net Assets:||$107.55 Million (6/30/22)|
|Morningstar Category:||Large Cap Blend|
|Benchmark Index:||Russell 1000|
Fund Fact Sheet Q2 2022
PM Commentary Q2 2022
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.
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
CFRA Research and Dividend.com recently hosted a webinar with the topic “Dividend Funds: Do we even need bonds?“. Buffalo Dividend Focus Fund co-portfolio manager Jeff Deardorff, CFA, was a featured presenter on the panel.
To learn more about what was discussed during the webinar and to access a free replay, click here.
Overall Morningstar Rating™ of BUFDX based on risk-adjusted returns among 1,231 Large Blend funds as of 8/31/22.
|As of 8/31/22||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||-3.71||-8.93||-5.33||12.03||10.97||12.28|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||-3.63||-8.82||-5.18||12.19||11.14||12.45|
|Russell 1000 Index||-3.69||-16.90||-12.96||12.14||11.61||13.21|
|Morningstar U.S. Large-Mid Cap Index||-3.71||-17.24||-13.34||12.01||11.61||13.19|
|S&P 500 Index||-3.88||-16.14||-11.23||12.39||11.82||13.35|
|Morningstar Large Blend Category||-4.20||-15.95||-12.08||10.77||10.27||11.15|
|As of 6/30/22||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||-11.59||-12.69||-6.46||10.87||10.29||12.02|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||-11.52||-12.63||-6.28||11.04||10.46||12.19|
|Russell 1000 Index||-16.67||-20.94||-13.04||10.17||11.00||12.87|
|Morningstar U.S. Large-Mid Cap Index||-16.88||-21.25||-13.24||10.09||11.01||12.85|
|S&P 500 Index||-16.10||-19.96||-10.62||10.60||11.31||13.05|
|Morningstar Large Blend Category||-14.88||-19.30||-11.58||9.14||9.77||10.90|
|BUFFALO DIVIDEND FOCUS FUND - Investor||23.93||20.81||0.13||12.06||18.02||-5.05||27.66||16.64||20.97|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||24.12||20.98||0.28||12.23||18.20||-4.91||27.85||16.83||21.15|
|Russell 1000 Index||33.11||13.24||0.92||12.05||21.69||-4.78||31.43||20.96||26.45|
|Morningstar U.S. Large-Mid Cap Index||33.20||13.32||0.92||11.59||21.71||-4.52||31.61||21.11||26.44|
3 Year Risk Metrics
|BUFDX vs Russell 1000 Index (As of 6/30/22)|
Hypothetical Growth of $10,000
Capital Gains, if any – Record Date (12/2/22); Payment Date (12/5/22)
Net Investment Income, if any – Record Date (12/19/22); Payment Date (12/20/22)
|(As of 6/30/22)||
|# of Holdings||88|
|Median Market Cap||$59.51 B|
|Weighted Average Market Cap||$354.57 B|
|3-Yr Annualized Turnover Ratio||17.35%|
|% of Holdings with Free Cash Flow||69.62%|
|30-day SEC Yield||1.42%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net
|Viper Energy Partners||VNOM||Energy||3.79%|
|CVS Health||CVS||Health Care||2.85%|
|S&P Global||SPGI||Financial Services||2.50%|
|UnitedHealth Group||UNH||Health Care||2.44%|
|Horizon Therapeutics||HZNP||Health Care||2.22%|
|Bank of America||BAC||Financial Services||1.97%|
|TOP 10 HOLDINGS TOTAL||29.61%|
CAPITAL MARKET OVERVIEW
(As of 6/30/22) — The stock market extended year-to-date losses during the 2nd quarter. Inflation, rising interest rates, and economic uncertainty continued to be major headwinds for investors as recession talks gained traction. The S&P 500 Index fell -16.10% during the quarter, bringing the total return for the first half of the year to -19.96%. News headlines, which included energy shortages, the war in Ukraine, China’s COVID lockdowns, and the potential for softer corporate earnings next quarter, added to the pessimistic market sentiment. However, the Federal Reserve’s hawkish stance on inflation, expectations for additional interest rate increases, and a reduction in the size of its balance sheet, continued to signal confidence in the U.S. economy moving forward.
The broad-based Russell 3000 Index declined -16.70% in the quarter. Value stocks fell less than growth stocks as the Russell 3000 Value Index returned -12.41%, versus a return of -20.83% for the Russell 3000 Growth Index. Relative performance slightly favored market cap size as large caps outperformed small caps in the quarter. Larger cap stocks, as measured by the Russell 1000 Index, returned -16.67% compared to the smaller cap Russell 2000 Index return of -17.20% and the Russell Microcap Index return of -18.96%. There were no advancing economic sectors for the quarter, but Consumer Staples, Energy, Utilities, and Healthcare held up better on a relative basis. Consumer Discretionary, Information Technology and Communication Services areas lagged.
Specific securities that contributed the most to performance included Eli Lilly & Co. (LLY), Lamb Weston Holdings (LW), and Merck & Co. (MRK). Eli Lilly, a manufacturer and marketer of pharmaceutical products, climbed as investors reacted favorable to its robust new product cycle outlook over the next few years across large end markets such as diabetes, obesity, Alzheimer’s, cancer, and immunology. Lamb Weston, a producer of frozen potato products, gained on strong quarterly results with margins expected to rise as price increases are implemented and the potato crop normalizes. Merck, a manufacturer and marketer of pharmaceutical products, advanced on solid quarterly results beating expectations (cancer drugs, anti-viral, and vaccines) while management also raised its financial guidance for the year.
Apple Inc. (AAPL), Microsoft Corp. (MSFT), and HCA Healthcare Inc. (HCA) detracted from the Fund’s performance in the quarter. Despite reporting record quarterly results, shares of Apple fell as management guided toward the impact of supply chain constraints that would curtail sales in the current quarter. Microsoft declined as currency headwinds resulted in a reduction of management’s guidance for quarterly results. HCA Healthcare, which operates hospitals and provides healthcare services, slumped as quarterly results and outlook were weaker than expected due to higher labor costs and COVID patients needing less intensive services.
Despite the uncertainty created by pandemic, Fed policy, and fiscal prospects, 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.
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