Flexible Income Fund

(As of 6/30/20) — Equity markets rebounded sharply in the 2nd quarter following steep losses in the previous period. The S&P 500 Index produced a return of 20.54%, marking the best quarterly performance results in 20 years. Stimulus efforts by the Federal Reserve (the “Fed”) and the U.S. Treasury Department to limit COVID-related economic damage helped equity markets find a floor in late March. Declining COVID-19 case counts, optimism about treatment and potential vaccines, along with better-than-expected economic data also contributed to improved investor sentiment during the period. Although confirmed virus cases began spiking again in the final days of June, it was not enough to undo the best quarterly market results since the dot-com boom.

The broad market Russell 3000 Index advanced 22.03% in the quarter, and Growth outperformed Value as the Russell 3000 Growth Index moved up 27.99% during the period, compared to the Russell 3000 Value Index’s advance of 14.55%. Relative performance was inversely-correlated by market cap as the Russell Micro Cap Index advanced 30.54%, well above the large cap Russell 1000 Index’s return of 21.82%. Meanwhile the small cap Russell 2000 Index and the Russell Mid Cap Index were up 25.42% and 24.61%, respectively. The best performing sectors were Technology, Consumer Discretionary, and Energy while the less cyclically exposed, more defensive areas like Utilities, Telecommunication, and Consumer Staples lagged in the quarter.

(As of 6/30/20) — The Buffalo Flexible Income Fund (BUFBX) produced a return of 17.00% for the quarter and outperformed the Morningstar Moderately Aggressive Target Risk Index return of 15.93%. The Fund’s peer group index, the Lipper Mixed-Asset Target Allocation Moderate Funds Index, produced a return of 12.72% for the quarter. The relative outperformance was driven by the Fund’s overweight allocation to equities and meaningful exposure to the Energy sector, a strong performing sector during the period.

PORTFOLIO PERFORMANCE

The top three contributors to the Fund’s performance during the quarter were Microsoft, Apache, and Hess while the top three detractors were Royal Dutch Shell, BP, and Boeing. In the current low interest rate environment, we are focused on dividend-paying equities and maintain an underweight allocation to traditional fixed income securities.

(As of 6/30/20) — The primary driver of the sharp rise in the stock market during the quarter was the expectations that the economy can recover from the COVID-19 pandemic. Central Banks have cut benchmark lending rates and expanded their balance sheets as they buy various assets of eligible securities. Investors have reacted by accumulating more risk assets, as they have been driven by the need to boost returns as well as the perception that Central Banks stand ready as a back stop to bail them out. The fiscal stimulus and financial aid programs passed by governments have begun to work their way into the economy. If the economy does not recover, politicians appear to be reluctantly willing to pass additional stimulus as needed. In addition, during the quarter, COVID-19 cases started to decline from peak levels, allowing domestic and international regions to reduce shelter in place orders and slowly get back to work. Nevertheless, as the restrictions relaxed, the COVID-19 case count has begun to accelerate from trough levels. However, policy makers appear reluctant to re-impose shelter in place orders. Several promising therapies appear to lessen the death rate of the virus, but, over the intermediate term, for the economy to recover and generate sustainable growth, the pandemic will need to be contained through vaccine development, which still appears several quarters out.