Ticker
  BUFDX

Inception Date
  December 3, 2012

Total Fund Assets
  $62.05 Million  (9/30/17)

Expense Ratio
  0.96%

Benchmark Index
  S&P 500

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,214 Large Blend funds as of 10/31/17 (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 1,214 funds in the Large Blend category, as of 10/31/17.

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

Performance (%)

As of 10/31/173 MOYTD1 YR3 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund3.3913.1620.128.8514.00
  S&P 500 Index4.7616.9123.6310.7715.46
  Lipper Equity Income Funds Index3.7511.8319.408.1512.66
  Morningstar Large Blend4.4015.5022.349.0113.25
As of 9/30/173 MOYTD1 YR3 YRSince Inception
(12/3/12)
Buffalo Dividend Focus Fund2.6610.8515.729.7213.78
  S&P 500 Index4.4814.2418.6110.8115.20
  Lipper Equity Income Funds Index3.8210.3515.908.3512.58
  Morningstar Large Blend4.1913.1917.659.0313.03
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 9/30/17)

vs S&P 500
Upside Capture90.76
Downside Capture94.29
Alpha-0.09
Beta0.91
Sharpe Ratio0.98

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 9/30/17)

# of Holdings89
Median Market Cap$93.87 B
Weighted Average Market Cap$180.08 B
3-Yr Annualized Turnover Ratio46.86%
30-day SEC Yield1.47%
% of Holdings with Free Cash Flow68.54%
Active Share53.40%
HoldingTickerSector% of Net Assets
AppleAAPLTechnology3.50%
MicrosoftMSFTTechnology2.68%
JPMorgan ChaseJPMFinancial Services1.98%
American Electric PowerAEPUtilities1.93%
VisaVFinancial Services1.87%
Bank of AmericaBACFinancial Services1.80%
BB&TBBTFinancial Services1.52%
BroadcomAVGOTechnology1.50%
Berkshire HathawayBRK/BFinancial Services1.47%
MonsantoMONMaterials1.45%
TOP 10 HOLDINGS TOTAL19.70%
View Full Holdings

As of 6/30/17. 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 winning streak in the 3rd quarter of 2017 with the S&P 500 Index posting its 8th consecutive quarterly gain. Investors have been encouraged by the synchronized upswing in global economic growth. For the first time since 2007, all 45 countries tracked by the Organization for Economic Cooperation and Development (OECD) are on pace to grow this year, with the growth rates expected to accelerate in 33 of those countries.

This economic backdrop, in conjunction with strong corporate earnings and a renewed focus on tax reform, helped the reflation trade regain momentum in the quarter. The reflation trade, also known as the “Trump trade”, pushed shares of banks, industrials, and smaller companies higher, while expectations of another interest rate increase by the Federal Reserve drove relative weakness in Treasury bonds and their stock market proxies, such as utility companies. The U.S. dollar also strengthened during the period against most major foreign currencies. Furthermore, strong demand and slowing production of oil in the U.S. drove West Texas Intermediate crude prices up 12.2% in the period.

The S&P 500 Index produced a total return of 4.48% during the quarter. Growth stocks outperformed value stocks, as the S&P 500 Growth Index advanced 5.29%, compared to a gain of 3.48% for the S&P 500 Value Index. Shares of smaller capitalized companies generally outperformed larger companies during the quarter. The S&P SmallCap 600 Index climbed 5.96% during the period, compared to a gain of 3.22% for the S&P MidCap 400 Index. Technology and energy were the best performing sectors, while consumer staples and consumer discretionary sectors lagged.

PERFORMANCE COMMENTARY

The Buffalo Dividend Focus Fund posted a return of 2.66% for the quarter, which underperformed the S&P 500 Index return of 4.48%. The Fund’s underperformance was primarily driven by relative weakness in the consumer discretionary, information technology, and healthcare areas of the portfolio.

The top contributors on an individual security basis were Boeing, Apple, and Abbvie while AMC Entertainment, Sabre, and Medtronic were the top detractors. The Fund’s cash position was also a slight drag on performance given the strong quarterly advance for the index.

Within the consumer discretionary sector, the Fund’s relative underperformance was primarily driven by security selection as AMC Entertainment Holdings declined by nearly 35%. The fall in AMC’s shares reflected investor concerns surrounding premium video on demand (PVOD) and its potential impact on theater industry revenues, as well as a weaker than expected box office.

Other detractors within consumer discretionary included Goodyear Tire and Cedar Fair. Goodyear provided a weaker than expected outlook on its earnings call, while Cedar Fair, the amusement park operator, released weak operating metrics for the Labor Day holiday due to unfavorable weather conditions.

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 securities within the S&P 500 Index that the fund did not own, such as Nvidia, and a few non-dividend paying index constituents including Paypal.

Regarding investment positions with the Fund, Sabre Corp was the largest detractor within the information technology sector, as the company disappointed when they announced a slowdown in their airline solutions business due to the halting of an implementation at Air Berlin, Alitalia’s bankruptcy, and the loss of a Southwest Airlines domestic contract. This, coupled with increased investment in new products and technology, are also expected to weigh on the company’s growth and margins in the near term.

The underperformance within the healthcare sector was due mostly to security selection, and the two biggest detractors in the Fund were Shire and Cardinal Health. The weakness in Shire during the quarter reflected fears around a competitor’s new product in the hemophilia market and a patent loss for its Lialda drug that is anticipated to negatively impact future revenues. Meanwhile, the decline in shares of Cardinal Health reflected investor concerns about weakness in generic drug pricing, in general.

OUTLOOK

We believe the market could experience more volatility in the coming quarters as the Federal Reserve continues its plan to normalize interest rates, along with a focus on the ability 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, potential headwinds include strengthening of the U.S. dollar, further increases in interest rates, and 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 greater 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. We continue follow our process of finding new investment ideas and are 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 3 stars among 1214 Large Blend funds for the three-year period ending 10/31/17.

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.