Quick Facts

(As of 3/31/17)

Ticker
  BUFBX

Inception Date
  August 12th, 1994

Total Fund Assets
  $798.1 M

Expense Ratio
  1.01%

Benchmark Index
  S&P 500

MORNINGSTAR RATING

Overall Morningstar™ rating out of 347 Allocation–70% to 85% Equity funds as of 3-31-2017 (derived from a weighted average of the fund’s three-, five-, and ten-year risk adjusted return measure, if applicable).

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

Overview

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 3/31/17)3 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
Buffalo Flexible Income Fund1.611.6111.023.906.786.056.697.18
S&P 500 Index6.076.0717.1710.3713.307.517.099.58
Lipper Mixed-Asset Target Allocation Moderate Funds Index4.234.2310.614.716.914.695.476.94
Morningstar Allocation--50% to 70% Equity4.814.8112.554.517.854.535.79-
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 3/31/17)3 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
Buffalo Flexible Income Fund1.611.6111.023.906.786.056.697.18
S&P 500 Index6.076.0717.1710.3713.307.517.099.58
Lipper Mixed-Asset Target Allocation Moderate Funds Index4.234.2310.614.716.914.695.476.94
Morningstar Allocation--50% to 70% Equity4.814.8112.554.517.854.535.79-
Each Morningstar category average represents a universe of funds with similar objectives.
YearBuffalo Flexible IncomeS&P 500 IndexMorningstar Allocation-50% to 70% Equity
20169.9011.967.34
2015-1.971.38-1.93
20143.5913.696.21
201316.6832.3916.48
201210.3116.0011.72
20119.632.11-0.11
201011.6815.0611.83
200931.0726.4624.13
2008-29.47-37.00-28.00
20079.625.495.99
Each Morningstar category average represents a universe of funds with similar objectives.

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.

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 3/31/17)
# of Equity Holdings61
# of Fixed Holdings22
Median Market Cap$56.28 B
Weighted Average Market Cap$133.72 B
3-Yr Annualized Turnover Ratio17.35%
Average Duration1.78 years
Average Maturity4.23 years
30-day SEC Yield1.18%
HoldingTickerSector% of Portfolio
Lions Gate Entmt Cv 1.25% 3.83%
General Electric GEIndustrials3.17%
AT&T TCommunications3.05%
Microsoft MSFTTechnology3.04%
Procter & Gamble PGConsumer Staples2.93%
Exxon Mobil XOMEnergy2.76%
Bankrate Inc Del 144A 6.125% 2.73%
Intel INTCTechnology2.66%
Verizon VZCommunications2.57%
Chevron CVXEnergy2.44%
TOP 10 HOLDINGS TOTAL29.18%
View Full Holdings

As of 12/31/16. 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 3/31/17. 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 3/31/17. Allocation percentages may not equal 100% due to rounding.

Commentary

CAPITAL MARKET OVERVIEW

Capital markets got off to a volatile start in 2016 with the Russell 3000 Index dropping over 11% and West Texas Intermediate (WTI) Crude Oil down almost 30% by mid-February. Concerns about soft Chinese economic growth contributed to equity market weakness early in the year, and the energy complex was struggling to resolve its oversupplied condition. Meanwhile, perceived “safe-haven” assets performed strongly as U.S. 10-year Treasury notes advanced and gold appreciated over 15% during the same time frame. Economic concerns and a falling stock market led the Federal Reserve to adopt a less aggressive stance toward interest rate increases, and falling crude production eventually calmed fears of oversupply. These drivers led to a rebound in prices of both equities and crude oil and began a period of steadily rising prices and declining volatility that would continue from midFebruary through the end of the year with only minor interruption. Interestingly, perceived ”safe-haven” assets continued to perform strongly as gold and U.S. Treasuries rallied alongside equities into the summer and largely held those gains into the fall. The fourth quarter of 2016 began with this uneasy disequilibrium still largely intact, but sentiment changed dramatically with Donald Trump’s surprise election victory on November 8th. The election outcome created expectations of pro-growth policies and deregulation that drove accelerating gains in stock prices, higher interest rates and associated declines in the prices of both Treasury bonds and gold, all of which generally persisted through the end of 2016.

The Russell 3000 Index returned 12.74% for the full year. The Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 11.01% during the year, and smaller-capitalization indices such as the Russell Microcap Index, the Russell 2000 Index and the Russell Midcap Index outperformed the large-capitalization Russell 1000 Index by 8.31%, 9.25% and 1.74%, respectively. Much of the outperformance of value stocks can be attributed to the strong performance of the energy sector. Outperformance of small-capitalization stocks was reflective of investor aversion to greater international exposure of larger companies in the face of a rising dollar, as well as increasingly optimistic expectations for the domestic economy and for a lower U.S. corporate tax rate following the election. For the year, Energy and Materials were the best performing sectors in the Russell 3000 Index as expectations for infrastructure investment and increasing investor risk appetite following the election contributed to the reversal of prior year underperformance that was already underway. Health Care was the worst performing sector for the year, as concerns about political backlash against rising drug prices contributed to declines in Pharmaceutical & Biotech stocks.

For the fourth quarter, the Russell 3000 Index returned 4.21%. The Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 6.04% during the quarter while smaller-capitalization indices such as the Russell Microcap Index and the Russell 2000 Index outperformed the large-capitalization Russell 1000 Index by 6.22% and 5.00%, respectively. The Russell Midcap Index of mid-sized companies underperformed the Russell 1000 Index by 0.62% in the fourth quarter and was the lone exception to the trend of small outperforming large. Outperformance of more cyclically sensitive value stocks and small-capitalization stocks reflected some of the same drivers that were in place earlier in the year, as well as increasingly optimistic expectations for economic growth, higher interest rates and expectations of a lower corporate tax rate in the U.S. following the election. Financial Services was the best performing sector in the fourth quarter, benefiting from higher interest rates and expectations for a less adversarial regulatory regime under the new Republican administration. The flip-side of greater risk appetite was less demand for stable, “bond-like” equities which was reflected in the lower-risk Consumer Staples sector performing poorly during the quarter. Political risk continued to put pressure on the Health Care sector, as uncertainty regarding potential for drug price regulation and repeal of the Affordable Care Act contributed to Health Care being the worst performing sector during the quarter.

PERFORMANCE COMMENTARY

The Buffalo Flexible Income Fund produced a return 4.33% for the quarter and outperformed the S&P 500 Index return of 3.82%.

The equity portion of the portfolio outperformed the S&P 500 Index with a total return of 1.09% for the quarter. The relative outperformance was primarily driven by the fund’s investments within the energy and consumer discretionary sectors. The relative outperformance within the energy sector was driven by sector allocation as the fund was significantly overweight one of the better performing sectors in the S&P 500 Index. The outperformance within the consumer discretionary sector was driven by security selection, specifically the performance of Lions Gate Entertainment. The top three contributors to the fund’s equity performance during the quarter were HollyFrontier, Lions Gate Entertainment and BB&T Corporation while the top three detractors were Proctor & Gamble, GlaxoSmithKline and Pitney Bowes.

The fixed income portion of the fund generated a return of 2.17% and outperformed the BofA Merrill Lynch High Yield Master II Index return of 1.88%. The outperformance was driven primarily by the consumer discretionary sector and to a lesser degree telecom. As was the case in the equity portion of the portfolio, Lions Gate Entertainment was the significant driver of performance within consumer discretionary. Security selection was also the driver of outperformance within the telecom sector and Neustar was the biggest contributor as the company agreed to be acquired during the quarter. The top three contributors to the fund’s fixed income performance during the quarter were Lions Gate Entertainment, Neustar, and Bankrate while the top three detractors were Valeant, Community Health Systems, and Medicines Company.

OUTLOOK

We expect the market to experience continued volatility in the coming quarters as the Federal Reserve contemplates potential increases 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 a continued 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. We continue to search for new investment opportunities across the yield spectrum. Within the equity universe we continue to focus most of our attention on large cap, wide moat potential dividend payers. Within fixed income, we are focused on high yield bonds, convertible bonds and banks loans. More recently we have been finding better value in shorter duration high yield bonds but continue to believe that bank loans should provide value if the Federal Reserve continues to increase interest rates. Bank loans are one of the few asset classes that may increase in value as the Fed Fund rate increases. Within the convertible bond space, we are looking at both “busted converts” and converts with equity upside potential.

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.

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 RatingTM 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 RatingTM 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 2 stars among 347 for the three-year, 2 stars among 286 for the five-year, and 5 stars among 216 Allocation--70% to 85% Equity category funds for the ten-year period ended 3/31/17.

©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.

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.