Quick Facts

(As of 6/30/17)

Ticker
  BUFDX

Inception Date
  December 3, 2012

Total Fund Assets
  $64.6 Million

Expense Ratio
  0.96%

Benchmark Index
  S&P 500

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,231 Large Blend funds as of 8/31/17 (derived from the fund’s three-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

 

Low High

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 1,223 funds in the Large Blend category, as of 8/31/17.

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
~ Scott Moore, Portfolio Manager

Performance (%)

As of 8/31/173 MOYTD1 YR3 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund1.389.2414.508.8513.68
  S&P 500 Index3.0111.9316.239.5414.98
  Lipper Equity Income Funds Index1.927.3112.266.7112.16
  Morningstar Large Blend2.6110.5714.837.5312.73
As of 6/30/173 MOYTD1 YR3 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund1.337.9816.879.2713.94
  S&P 500 Index3.099.3417.909.6114.99
  Lipper Equity Income Funds Index2.176.2814.436.7812.39
  Morningstar Large Blend2.928.6517.177.6012.78
YearBuffalo Dividend FocusS&P 500Morningstar Large Blend Category
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 6/30/17)

vs S&P 500
Upside Capture94.67
Downside Capture94.70
Alpha0.40
Beta0.92
Standard Deviation9.97
Sharpe Ratio0.91

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 6/30/17)

# of Holdings90
Median Market Cap$85.16 B
Weighted Average Market Cap$166.70 B
3-Yr Annualized Turnover Ratio51.68%
30-day SEC Yield1.34%
% of Holdings with Free Cash Flow68.54%
Active Share53.91%
HoldingTickerSector% of Net Assets
AppleAAPLTechnology3.79%
MicrosoftMSFTTechnology2.78%
JPMorgan ChaseJPMFinancial Services2.07%
American Electric PowerAEPUtilities2.03%
VisaVFinancial Services1.93%
Bank of AmericaBACFinancial Services1.90%
CoreCivicCXWReal Estate1.75%
BB&TBBTFinancial Services1.62%
Berkshire HathawayBRK/BFinancial Services1.57%
BroadcomAVGOTechnology1.52%
TOP 10 HOLDINGS TOTAL20.96%
View Full Holdings

As of 3/31/17. 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 6/30/17. 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 6/30/17. Market Cap percentages may not equal 100% due to rounding.

CAPITAL MARKET OVERVIEW

Equity markets continued their strong start to the year during the second quarter, primarily driven by strong corporate earnings growth. The S&P 500 Index advanced 3.09% in the second quarter. As reported during the June 30 period, earnings from S&P 500 Index companies were up 14% year-over-year in the first quarter, the strongest growth reading since 2011.

Broadly speaking, growth stocks continued their outperformance relative to value stocks, while cyclical stocks that rallied to end 2016 underperformed as investors continue to discount the likelihood of government infrastructure spending and comprehensive tax reform.

The yield on the U.S. 10-year Treasury ended the June 30 period at 2.298%, a decline from its recent high of 2.609% in March due in large part to weaker inflation readings. In contrast, the outlook for growth and interest rate expectations improved in much of the rest of the world, which has driven the trade weighted U.S. dollar down 5.6% year to date. Oil entered bear market territory, with crude prices declining 9% during the quarter in response to stronger than expected inventory levels and rising U.S. production.

As mentioned above investors continued to favor growth over value, and the S&P 500 Growth Index climbed 4.42% during the period compared to the more modest gain of 1.51% for the S&P 500 Value Index. By size, large caps were the best performers followed by the S&P 400 MidCap Index and the S&P 600 SmallCap Index which advanced 1.97% and 1.71% respectively. Within the S&P 500 Index, Health Care was the best performing sector as the chances for legislation to repeal or reform the Affordable Care Act appeared to diminish, and investors reacted by bidding up health care stocks. The Technology sector was also a strong performer as the market continued to reward the strong earnings growth produced in this area. Conversely, Telecom was the worst performing sector due to a highly competitive pricing environment and Energy was the second worst performing sector driven by the decline in oil prices mentioned above.

PERFORMANCE COMMENTARY

The Buffalo Dividend Focus Fund posted a return of 1.33% for the quarter, which underperformed the S&P 500 Index return of 3.09%. Much of the benchmark’s gain was led by growth-oriented companies that pay little or no dividend which created a significant style headwind for our equity-income mandate during the period. For the quarter the Fund’s relative underperformance was primarily driven by the following sectors, Consumer Discretionary, Health Care and Information Technology.

The top contributors on an individual security basis were Activision Blizzard, Anthem, and UnitedHealth Group while Foot Locker, AMC Entertainment, and CoreCivic were the top detractors. The funds cash position, which was somewhat higher than our typical average, was also a slight drag on performance.

Within the Consumer Discretionary sector, the Fund’s relative underperformance was primarily driven by security selection as Foot Locker declined by nearly 36% and AMC Entertainment declined by almost 18%. The pullback in Foot Locker was driven by weaker than expected earnings and comparable sales as well as fears about competition from Amazon and more direct selling by some of their leading branded partners Nike and Adidas. The decline in AMC reflects investor concerns surrounding premium video on demand (PVOD) and its potential impact on the theater industry revenues.

The Fund’s underperformance in Information Technology was driven mostly by security selection and to a lesser extent sector weighting. Security selection was negatively impacted by several high growth, high valuation securities within the S&P 500 Index that the Fund did not own such as Nvidia as well as several non-dividend payers in the benchmark including Alphabet, Facebook and Paypal.

The underperformance within the Health Care sector was due to both security selection and an underweight position relative to the index as Health Care generated the highest sector returns in the Index during the quarter. The two biggest detractors in the Fund were Shire and Cardinal Health. The weakness in Shire during the quarter reflected the markets fears around a competitor’s new product in the hemophilia market and a patent loss negatively affecting its Lialda drug.

OUTLOOK

We believe the market could experience more volatility in the coming quarters as the Federal Reserve continues with its desire to normalize interest rates along with a focus on the likelihood of the Trump administration to enact infrastructure spending, deregulation, and corporate tax reform. Prospective tailwinds for the economy include further job growth, wage increases, lower tax rates, and simply more optimism from both businesses and consumers; all of which could lead to higher Gross Domestic Product (GDP) growth. On the other hand, possible headwinds include potential strengthening of the U.S. dollar, further increases in interest rates, and stock price valuation metrics that are above historical market averages leading us to believe that the stock market may have a hard time achieving further multiple expansion.

Despite the expectation of more volatility, we continue to focus on wide moat, large capitalization companies that are trading at reasonable valuations, in our view. As always, the Fund will continue to focus on competitively advantaged companies that can be purchased at a fair price, in our opinion. As the stock market has continued to climb, it is getting harder to find companies that fit our investment criteria, but we continue follow our process of finding new investment ideas and to be ready when market declines provide better opportunities.

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 4 stars among 1231 Large Blend funds for the three-year period ending 8/31/17.

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.

©2017 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.