Dividend Focus Fund
|Total Net Assets:||$111.06 Million (9/30/21)|
|Morningstar Category:||Large Cap Blend|
|Benchmark Index:||Morningstar U.S. Large-Mid Cap|
Fund Fact Sheet Q3 2021
PM Commentary Q3 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
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 1,247 Large Blend funds as of 11/30/21.
|As of 11/30/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||-0.58||15.70||20.67||16.32||14.64||13.99|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||-0.54||15.87||20.91||16.50||14.81||14.16|
|Morningstar U.S. Large-Mid Cap Index||0.72||21.62||26.53||20.80||18.08||16.29|
|S&P 500 Index||1.32||23.18||27.92||20.38||17.90||16.24|
|Morningstar Large Blend Category||-0.10||20.49||25.23||18.14||15.88||13.77|
|As of 9/30/21||3 MO||YTD||1 YR||3 YR||5 YR||Since Inception|
|BUFFALO DIVIDEND FOCUS FUND - Investor||0.33||13.28||29.83||13.74||14.26||14.00|
|BUFFALO DIVIDEND FOCUS FUND - Institutional||0.40||13.41||30.03||13.91||14.73||14.17|
|Morningstar U.S. Large-Mid Cap Index||0.29||15.10||30.20||16.56||17.18||15.90|
|S&P 500 Index||0.58||15.92||30.00||15.99||16.90||15.77|
|Morningstar Large Blend Category||-0.18||15.00||29.94||14.34||15.28||13.46|
|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 9/30/21)|
Hypothetical Growth of $10,000
— Record Date (12/17/21); Payment Date (12/20/21) – Ordinary Income, if any
|(As of 9/30/21)|| |
|# of Holdings||91|
|Median Market Cap||$47.12 B|
|Weighted Average Market Cap||$417.11 B|
|3-Yr Annualized Turnover Ratio||21.49%|
|% of Holdings with Free Cash Flow||67.50%|
|30-day SEC Yield||1.02%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|Viper Energy Partners||VNOM||Energy||2.90%|
|CVS Health||CVS||Health Care||2.49%|
|Elanco Animal Health||ELAT||Health Care||2.43%|
|Bank of America||BAC||Financial Services||2.20%|
|Horizon Therapeutics||HZNP||Health Care||2.09%|
|UnitedHealth Group||UNH||Health Care||2.03%|
|Citizens Financial Group||CFG||Financial Services||1.93%|
|TOP 10 HOLDINGS TOTAL||27.24%|
CAPITAL MARKET OVERVIEW
(As of 9/30/21) — Equity market returns were somewhat mixed in the 3rd quarter, but the S&P 500 Index etched out a modestly positive return of 0.58%. The global recovery hit a speed bump during the period as the world dealt with rising COVID-19 Delta variant infections, an energy price spike, and supply chain issues that continued to constrain economic growth. After trading lower earlier in the quarter, interest rates increased later in the period in response to higher-than-expected inflation data and an admission from the Federal Reserve (the “Fed”) that they would need to begin removing monetary stimulus from the economy sometime soon.
The Russell 3000 Index declined -0.10% in the quarter. Growth stocks outperformed Value stocks as the Russell 3000 Growth Index returned 0.69% versus a drop of -0.93% for the Russell 3000 Value Index. Relative performance was correlated with market cap size as large caps outperformed small caps in the quarter. The large cap Russell 1000 Index returned 0.21% compared to the Russell Midcap Index return of -0.93%. Smaller market cap indices were even more negative, with the Russell 2000 Index returning -4.36% and the Russell Microcap Index returning -4.98%. Financials were the top performing sector for the quarter, while Industrials and Materials were lagging sectors.
(As of 9/30/21) — The Buffalo Dividend Focus Fund (BUFDX) posted a return of 0.33% for the quarter, a result in-line with the Morningstar U.S. Large-Mid Cap Index return of 0.29%. Health Care, Financials, Energy, Industrials, Materials, and Telecommunication Services delivered constructive performance relative to the benchmark. The Fund’s investments in Information Technology, Consumer Discretionary, Consumer Staples, Real Estate, and Utilities detracted from the relative performance.
Specific securities that contributed most positively to performance included Viper Energy Partners LP (VNOM), Horizon Therapeutics PLC (HZNP), and HCA Healthcare Inc. (HCA). Viper Energy, an owner of oil and natural gas properties, climbed as energy prices moved higher with improving supply/demand drivers. Horizon Therapeutics, a biopharmaceutical company, advanced on a strong earnings report and favorable outlook for its drug pipeline. Meanwhile, HCA Healthcare, an owner and operator of hospitals and healthcare services, gained as the company’s quarterly results beat estimates and management raised its guidance.
Activision Blizzard Inc. (ATVI), Apellis Pharmaceuticals Inc., and Absolute Software Corporation (ABST) reduced from the Fund’s performance. Activision Blizzard, a gaming and software producer, fell as the company faced mounting backlash regarding sexual harassment, pay discrimination, and related litigation. Apellis Pharmaceuticals, a biopharmaceutical company, declined on mixed late-stage eye drug trial results (one study was safe; however, it missed its effectiveness target). Absolute Software Corporation, a provider of security software, dropped after management’s recent conservative financial guidance did not meet investors’ robust expectations.
(As of 9/30/21) — The stock market continued to advance in June and July reaching record highs, however in September the market traded off and gave up most of its early quarter gains. The rise in the first months of the quarter was attributed to the expectations that the economy continued to recover from the COVID-19 pandemic. New COVID-19 infections, hospitalizations, and deaths were declining in the U.S. as vaccines have been approved and injected into arms. Life was on the cusp of returning to normal; however, the Delta variant flared up and the momentum for returning to normality waned. The late summer surge in COVID-19 cases coincided with severe weather events (hurricanes, flooding, fires, etc.), supply chain logistics issues, key parts shortages, unemployment insurance plans ending, and inflation pressures led to reduced estimates for economic growth. Investors are also watching the politics in Washington as Congress works on the budget, infrastructure plans, and raising the debt ceiling, with all parties indicating an unwillingness to compromise. The Federal Reserve continued to indicate that it views the current elevated levels of inflation as transitory, and that they are not likely to raise interest rates in the near term. However, they did note that they are likely to curtail (or taper) their bond buying activity in near term, with a modest monthly decline in purchases.
Despite the uncertainty created by pandemic and fiscal policy, 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.
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