Dividend Focus Fund
|Total Net Assets:||$110.45 Million (6/30/21)|
|Category:||Large Cap Blend|
|Benchmark:||Morningstar U.S. Large-Mid Cap Index|
Fund Fact Sheet Q2 2021
PM Commentary Q2 2021
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
Overall Morningstar Rating™ of BUFDX based on risk-adjusted returns among 1,254 Large Blend funds as of 8/31/21.
|As of 8/31/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||3.82||16.37||28.71||15.05||15.27||14.49|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||3.90||16.51||28.89||15.23||15.45||14.67|
|Morningstar U.S. Large-Mid Cap Index||8.09||20.75||31.51||18.59||18.33||16.70|
|S&P 500 Index||7.95||21.58||31.17||18.07||18.02||16.56|
|Morningstar Large Blend Category||6.43||20.56||31.81||16.25||16.35||14.21|
|As of 6/30/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||7.17||12.91||37.87||16.45||15.32||14.40|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||7.16||12.95||38.02||16.61||15.48||14.57|
|Morningstar U.S. Large-Mid Cap Index||8.72||14.77||42.24||19.28||18.02||16.36|
|S&P 500 Index||8.55||15.25||40.79||18.67||17.65||16.19|
|Morningstar Large Blend Category||7.55||14.84||40.47||16.77||16.15||13.91|
|BUFFALO DIVIDEND FOCUS FUND - Investor||23.93||20.81||0.13||12.06||18.02||-5.05||27.66||16.64|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||24.12||20.98||0.28||12.23||18.20||-4.91||27.85||16.83|
|Morningstar U.S. Large-Mid Cap Index||33.20||13.32||0.92||11.59||21.71||-4.52||31.61||21.11|
3 Year Risk Metrics
|BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 6/30/21)|
Hypothetical Growth of $10,000
— Record Date (9/17/21); Payment Date (9/20/21) – Ordinary Income & Capital Gains, if any
— Record Date (12/2/21); Payment Date (12/3/21) – Capital Gains, if any
— Record Date (12/17/21); Payment Date (12/20/21) – Ordinary Income, if any
|(As of 6/30/21)|| |
|# of Holdings||87|
|Median Market Cap||$70.86 B|
|Weighted Average Market Cap||$413.16 B|
|3-Yr Annualized Turnover Ratio||21.50%|
|% of Holdings with Free Cash Flow||65.79%|
|30-day SEC Yield||0.96%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|Viper Energy Partners||VNOM||Energy||2.45%|
|Elanco Animal Health||ELAT||Health Care||2.27%|
|Bank of America||BAC||Financial Services||2.26%|
|Horizon Therapeutics||HZNP||Health Care||2.25%|
|UnitedHealth Group||UNH||Health Care||2.06%|
|Citizens Financial Group||CFG||Financial Services||2.03%|
|TOP 10 HOLDINGS TOTAL||26.23%|
CAPITAL MARKET OVERVIEW
(As of 6/30/21) — Equity markets moved higher for the fifth consecutive quarter, as the S&P 500 Index returned 8.55%, raising the year-to-date return to 15.25%. The COVID-19 vaccine rollout has helped fuel an economic comeback while corporate earnings are improving. The vaccine adoption around the world is encouraging, and over 50% of the U.S. population is now vaccinated. Capital markets continued to be supported by significant spending from Congress and aggressive monetary policy from the Federal Reserve (the Fed). The 2nd quarter was marked by outperformance of growth stocks, overcoming investor concerns of rising inflation and potential interest rate hikes in the prior quarter. Hawkish comments from the Fed replaced inflation worries with concerns about the magnitude and duration of the economic recovery. Long duration growth companies were beneficiaries as yields on the 10-Year and 30-Year Treasuries declined during the period after climbing for the previous four months.
The broad market Russell 3000 Index advanced 8.24% in the quarter. Growth stocks outperformed Value stocks, as the Russell 3000 Growth Index surged 11.38% compared to the Russell 3000 Value Index gain of 5.16%. Relative performance was correlated with market cap size in the quarter, as the large cap Russell 1000 Index returned 8.54%, the Russell Midcap Index advanced 7.50%, the small cap Russell 2000 Index returned 4.29%, and the Russell Microcap Index finished 4.14% higher.
All economic sectors produced positive returns during the period with the exception of Telecom Services. Real Estate, Information Technology, and Energy led the advance followed by Financials and Health Care. More defensive areas, such as Telecom Services, Utilities, and Consumer Staples, trailed on a relative basis.
(As of 6/30/21) — The Buffalo Dividend Focus Fund (BUFDX) posted a return of 7.17% for the 2nd quarter, underperforming the benchmark Morningstar U.S. Large-Mid Cap Index return of 8.72% and the S&P 500 Index return of 8.55%. With the exception of Telecommunication Services, all sectors in the Fund and benchmark index posted positive returns. The Fund’s sectors with the highest weightings (Information Technology, Health Care, and Financials) had mixed results relative to the benchmark index. Financials had favorable performance, while Health Care and Information Technology produced relative underperformance. Meanwhile the portfolio’s Consumer Staples, Energy, Real Estate, and Utilities holdings delivered constructive performance versus the benchmark while Industrials and Materials detracted from relative results.
Specific contributors to performance included Viper Energy Partners LP (VNOM), Microsoft Corp. (MSFT), and Apple Inc. (AAPL). Viper (oil and gas mineral interests) rose as energy prices moved higher on more balanced supply/demand and prospects for an economic rebound. Microsoft (software product and services) advanced on anticipated enterprise IT spending growth, which could lead to robust sales and margin expansion. Apple (consumer electronics and services) gained on continued healthy demand for high margin products and services and increased stock buybacks.
Walt Disney Company (DIS), Truist Financial Corporation (TFC), and Southwest Airlines (LUV) were among the holdings that were detractors from the Fund’s performance. Disney (entertainment and media) fell as the number of streaming subscribers fell slightly short of Wall Street expectations. Truist (financial services) declined on lower interest rates and concerns regarding loan growth. Southwest (airline) gave back some of its robust share price gains in the 1st quarter due to anticipated weaker yields as a result of higher fuel and operating expenses.
(As of 6/30/21) — The stock market continued to advance during the quarter and ended the period at a record high. New COVID-19 infections, hospitalizations, and deaths have declined in the U.S. as vaccines have been approved and administered. This has allowed the relaxing of COVID-related closures and restrictions. Workers are gradually returning to the office, and consumers are emerging from their homes and venturing back out. The pent-up demand aided by additional fiscal stimulus checks, and continued central banks’ accommodative policies, provide a favorable tailwind for the economy. Although the Fed continues to indicate that it is holding off raising interest rates, investors are mindful for any signs of inflation. While some prices have gone up, the Fed believes these are transitory. As the year continues to unfold, investors will also be focused on the following topics: prospects for passage of an announced infrastructure agreement, vaccination rates, booster shots, how COVID-19 variants will spread or be contained, if COVID-19 lockdowns resume, and how long monetary policy will remain accommodative.
Despite the uncertainty created by the pandemic, we remain focused on wide moat, large capitalization companies trading at reasonable valuations, in our view. As always, the Fund will continue to emphasize 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. ©2021 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.