Ticker
  BUFBX

Inception Date
  August 12, 1994

Total Fund Assets
  $692.81 Million  (6/30/18)

Expense Ratio
  1.01%

Benchmark Index
  60% Morningstar U.S. Large Cap / 40% ICE BofAML U.S. High Yield

MORNINGSTAR RATING

Overall Morningstar™ rating out of 323 Allocation–70% to 85% Equity funds as of 8/31/18 (derived from a weighted average of the fund’s three-, five-, and ten-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

 

LowHigh

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 323 funds in the Allocation–-70% to 85% Equity category, as of 8/31/18.

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Investment Strategy

The investment objective of the Buffalo Flexible Income Fund is primarily the generation of high current income and, as a secondary objective, the long-term growth of capital.

To pursue its investment objectives, the Flexible Income Fund invests in both debt and equity securities.

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Our investment strategy seeks to generate yield for any investor needing monthly income with capital appreciation, and we use many methods to address potential downside risks.

~ John Kornitzer, Portfolio Manager

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Performance (%)

As of 8/31/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND4.124.3514.629.866.927.258.177.42
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
6.13
8.75
2.20
7.12
10.58
1.93
13.36
20.10
3.26
12.70
16.48
7.04
11.08
14.72
5.63
9.83
10.80
8.37
8.80
9.47
7.79
8.88
9.79
7.52
  BofA ML Combined Index
    S&P 500 Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
5.54
7.76
2.20
7.12
10.58
1.93
13.10
19.66
3.26
12.48
16.11
7.04
10.96
14.52
5.63
9.86
10.86
8.37
8.83
9.53
7.79
8.85
9.74
7.52
  Lipper Mixed-Asset Target Allocation Moderate Funds Index2.652.527.147.877.116.236.247.00
  Morningstar Allocation--70% to 85% Equity Category3.554.0410.679.388.366.877.147.26
As of 6/30/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND4.180.5812.026.936.476.648.057.30
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
2.54
3.57
1.00
1.76
2.88
0.08
9.93
14.87
2.53
9.51
12.15
5.55
10.32
13.52
5.51
9.24
10.05
8.03
8.56
9.16
7.66
8.74
9.56
7.50
  BofA ML Combined Index
    S&P 500 Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
2.46
3.43
1.00
1.62
2.65
0.08
9.63
14.37
2.53
9.38
11.93
5.55
10.26
13.42
5.51
9.31
10.17
8.03
8.64
9.30
7.66
8.89
9.81
7.50
  Lipper Mixed-Asset Target Allocation Moderate Funds Index0.85-0.236.085.706.825.806.106.93
  Morningstar Allocation--70% to 85% Equity Category1.640.448.466.387.976.277.147.15

* Morningstar U.S. Large Cap Index (60%) / ICE BofAML U.S. High Yield Index (40%)
** S&P 500 Index (60%) / ICE BofAML U.S. High Yield Index (40%)

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.

As of July 27, 2018 the 60% Morningstar U.S. Large Cap Index/40% ICE BofAML US High Yield Index has replaced the Bank of America Merrill Combined Index (60% S&P 500 Index/40% ICE BofAML US High Yield Index) as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

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 6/30/18)

# of Equity Holdings56
# of Fixed Holdings14
Median Market Cap$81.95 B
Weighted Average Market Cap$152.04 B
3-Yr Annualized Turnover Ratio1.68%
Average Duration2.24 years
Average Maturity4.32 years
30-day SEC Yield2.29%
HoldingTickerSector% of Portfolio
BoeingBAIndustrials4.36%
HollyFrontierHFCEnergy4.03%
MicrosoftMSFTTechnology3.56%
IntelINTCTechnology3.52%
ConocoPhillipsCOPEnergy3.45%
Exxon MobilXOMEnergy2.99%
Royal Dutch ShellRDS/AEnergy2.88%
Verizon CommunicationsVZConsumer Staples2.88%
ChevronCVXEnergy2.74%
AT&TTCommunications2.72%
TOP 10 HOLDINGS TOTAL33.13%
View Full Holdings

As of 6/30/18. 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 6/30/18. 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 6/30/18. Allocation percentages may not equal 100% due to rounding.

Commentary

CAPITAL MARKET OVERVIEW

(As of 6/30/18) — Supportive economic data drove positive domestic equity performance in the 2nd quarter. The unemployment rate declined to 3.8%, the lowest level in 18 years. Wages have continued to rise, with average hourly earnings up 2.7% as of May. Corporate earnings growth continued to be robust. The Federal Reserve increased their target rate by 0.25% and raised their forecast for growth and inflation again in June. Meanwhile, economic growth outside the U.S. slowed, with the divergence driving strength in the U.S. dollar. Increasing trade protectionism along with the dollar’s strength, led to the relative outperformance of domestically focused industries and smaller capitalization companies, which generally do less international business than large caps. Crude oil prices continued to rise, despite the strong dollar, driven by lower stockpiles in the U.S. and President Trump’s decision to withdraw from the Iran nuclear accord.

The Russell 3000 Index returned 3.89% in the quarter. Growth continued to outpace value, with the Russell 3000 Growth Index up 5.87% and the Russell 3000 Value Index up 1.71%. By size, the Russell Microcap Index led the way with a return of 9.97%, followed by the small cap Russell 2000 Index at 7.75%. The large cap Russell 1000 Index was up 3.57%, and the Russell Midcap Index was up 2.82%. Energy was the best performing sector, driven by strength in crude oil prices. The Consumer Discretionary, Information Technology, and Real Estate sectors also had strong quarters. Meanwhile, trade fears and rising input costs caused the underperformance of Industrials, and Financials were weaker as a result of the yield curve flattening.

PERFORMANCE COMMENTARY

(As of 6/30/18) — For the quarter ended 6/30/18, the Buffalo Flexible Income Fund returned 4.18% compared to the S&P 500 Index return of 3.43% and the ICE Bank of America Merrill Lynch High Yield Master II Index return of 1.00%.

For the quarter, the equity portion of the portfolio returned 5.05% compared to 3.43% for the S&P 500 Index. The Fund’s equity component is primarily focused on large cap dividend payers, which we believe possess significant competitive advantages. The sectors that led to outperformance during the period were Energy and Financials. The outperformance in the Energy sector was driven by both sector allocation and security selection. The Fund maintained its overweight allocation to Energy for the period, which was the best performing sector in the S&P 500 Index.

Overall, the top contributors to fund performance in the quarter were HollyFrontier, ConocoPhillips, and Hess Corp., while the top detractors in the quarter were AT&T, Pitney Bowes, and IBM. HollyFrontier had a strong 1st quarter earnings report, which benefited from wider spreads, as pipeline capacity wasn’t able to keep up with Permian oil production. ConocoPhillips and Hess also reported strong 1st quarter earnings, driven by improved oil prices. Meanwhile, our portfolio’s outperformance in the Financials sector was due to sector allocation — we are underweight versus the Index, and Financials was the worst performing sector for the Index during the 2nd quarter.

The fixed income portion of the Fund generated a return of 1.18% for the quarter, which outperformed the ICE Bank of America Merrill Lynch Master II Index return of 1.00%. The top contributors to the Fund’s fixed income performance included Consolidated Communications, Medicines Company, and Approach Resources, while the top detractors were Nuance Communications, Brunswick, and Everi Payments.

OUTLOOK

(As of 6/30/18) — Given that we believe the U.S. is in the later stages of the current economic cycle, we continue to find ourselves confronted with relatively low spread and yield levels with the non-investment grade fixed income asset class that we prefer over the long haul. This backdrop has resulted in a bond allocation that is close to the low end of our expected range in terms of the Fund’s overall asset mix of stocks, bonds, and cash. Within the fixed income portion of the portfolio we continue to focus on high-quality, non-investment grade issuers with defensive business models and manageable credit metrics.

We expect the market to experience volatility in the coming quarters as the Federal Reserve is expected to continue with its plan to normalize interest rates. We are also concerned about the Federal Reserve taking a more aggressive tightening policy stance than investors currently anticipate. Other areas we are monitoring include inflation growth acceleration, geopolitical issues, and increasing protectionism efforts from the White House. Valuation metrics are also above historical market averages, leading us to believe the stock market may have a hard time achieving further multiple expansion.

On the positive side, we see prospective tailwinds for the economy that 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 and a continued move higher in the stock market.

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 Flexible Income Fund received 3 stars among 323 for the three-year, 2 stars among 279 for the five-year, and 4 stars among 201 Allocation--70% to 85% Equity funds for the ten-year period ending 8/31/18.

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.

©2018 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.

Bond ratings are grades given to bonds that indicates their credit quality as determined by a private independent rating service such as [Standard & Poor's or Moody’s, etc.]. The firm evaluates a bond issuer's financial strength, or its ability to pay a bond's principal and interest in a timely fashion. Ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'D', which is the lowest grade. Not Rated category includes holdings that are not rated by any rating agencies.