Flexible Income Fund
|As of 6/8/2023|
|Total Net Assets:||$469.22 Million (3/31/23)|
|Morningstar Category:||Large Value|
|Benchmark Index:||Russell 3000|
Fund Fact Sheet Q1 2023
PM Commentary Q1 2023
Fund Objective & Investment Process
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.
The allocation of assets invested in each type of security is designed to balance income and long-term capital appreciation with reduced volatility of returns. The Flexible Income Fund expects to change its allocation mix over time based on the Fund managers’ view of economic conditions and underlying security values.
The Fund maintains a flexible investment policy which allows it to invest in debt securities with varying maturities. However, it is anticipated that the dollar-weighted average maturity of debt securities that the Fund purchases will not exceed 15 years.▼
With respect to debt securities, the Fund managers perform extensive fundamental investment research to identify investment opportunities for the Flexible Income Fund. When evaluating investments and the credit quality of rated and unrated securities, the Fund managers look at a number of past, present and estimated future factors, including financial strength of the issuer, cash flow, management, borrowing requirements, sensitivity to changes in interest rates and business conditions, relative value.
The Flexible Income Fund relies on the Fund manager to undertake a careful analysis to determine the creditworthiness of the issuers of rated debt (on debt ratings by Moody’s Investors Service, Inc., (“Moody’s) or S&P Global Ratings, (“S&P”)), as well as the issuers of debt not rated by Moody’s or S&P.
The Fund will not purchase a debt security that is rated less than Caa/CCC by Moody’s or S&P, respectively, and will only purchase an unrated debt security if the Fund managers believe that the security is of at least B quality, subject to a limitation that the Fund may not hold more than 20% of its net assets in debt securities that are rated less than B or that are unrated debt securities of similar quality, based on the Fund managers’ fundamental analysis of the issuer and of rated bonds issued by similar issuers. The Fund has no limitations on principal, interest or reset terms on debt securities held in the Fund.
With respect to equity securities, the Fund managers emphasize dividend-paying stocks that over time have exhibited consistent growth of dividends, but may sell investments to secure gains, limit losses or reinvest
in more promising investment opportunities.
John Kornitzer, Portfolio Manager
Overall Morningstar Rating™ of BUFBX based on risk-adjusted returns among 1,135 Large Value funds as of 4/30/23.
|As of 4/30/23||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||-0.32||1.94||4.47||16.24||8.62||7.24||7.04||8.50||7.50|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||-0.29||1.93||4.57||16.39||8.77||7.40||7.20||8.66||7.65|
|Russell 3000 Index||1.34||8.32||1.50||14.07||10.60||11.67||9.62||10.06||9.94|
|Morningstar Moderately Aggressive Target Risk Index||-0.49||5.88||0.91||9.31||5.93||7.03||-||-||-|
|Lipper Mixed-Asset Target Allocation Moderate Funds Index||0.13||5.06||0.95||7.28||5.34||5.81||5.29||6.15||6.66|
|Morningstar Large Value Category||-2.85||2.01||1.38||15.21||7.89||9.02||7.59||8.44||-|
|As of 3/31/23||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||-0.96||-0.96||-0.87||20.04||8.41||7.07||7.12||8.67||7.41|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||-0.97||-0.97||-0.78||20.20||8.57||7.22||7.28||8.83||7.57|
|Russell 3000 Index||7.18||7.18||-8.58||18.48||10.45||11.73||9.90||10.44||9.93|
|Morningstar Moderately Aggressive Target Risk Index||4.88||4.88||-6.62||12.12||5.82||7.11||-||-||-|
|Lipper Mixed-Asset Target Allocation Moderate Funds Index||4.01||4.01||-5.66||9.34||5.14||5.85||5.44||6.37||6.64|
|Morningstar Large Value Category||0.87||0.87||-5.10||18.93||7.78||9.12||7.84||8.81||-|
|BUFFALO FLEXIBLE INCOME FUND - Investor||16.68||3.59||-1.97||9.90||13.21||-7.00||18.76||-2.24||30.00||4.01|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||16.85||3.75||-1.83||10.07||13.38||-6.86||18.87||-2.10||30.21||4.22|
|Russell 3000 Index||33.55||12.56||0.48||12.74||21.13||-5.24||31.02||20.89||25.66||-19.21|
|Morningstar Moderately Aggressive Target Risk Index||20.18||4.97||-2.40||10.21||18.89||-6.74||22.95||13.51||14.04||-15.48|
Hypothetical Growth of $10,000
Net Investment Income, if any – Record Date (6/20/23); Payment Date (6/21/23)
Net Investment Income, if any – Record Date (7/17/23); Payment Date (7/18/23)
Net Investment Income, if any – Record Date (8/17/23); Payment Date (8/18/23)
Net Investment Income, if any – Record Date (9/18/23); Payment Date (9/19/23)
Net Investment Income, if any – Record Date (10/17/23); Payment Date (10/18/23)
Net Investment Income, if any – Record Date (11/17/23); Payment Date (11/20/23)
Capital Gains, if any – Record Date (12/4/23); Payment Date (12/5/23)
Net Investment Income, if any – Record Date (12/18/23); Payment Date (12/19/23)
|(As of 3/31/23)||
|# of Holdings||55|
|Median Market Cap||$62.19 B|
|Weighted Average Market Cap||$308.55 B|
|3-Yr Annualized Turnover Ratio||3.44%|
|30-day SEC Yield||1.96%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net
|Eli Lilly & Co||LLY||Health Care||3.32%|
|Costco Wholesale||COST||Consumer Staples||2.85%|
|Arthur J Gallagher & Co||AJG||Financial Services||2.79%|
|TOP 10 HOLDINGS TOTAL||38.40%|
CAPITAL MARKET OVERVIEW
(As of 3/31/23) — Capital markets moved higher in the first quarter of 2023 as the S&P 500 Index gained 7.50% and the Bloomberg Aggregate Bond Index advanced 3.0%. Big swings in expectations for the Federal Reserve’s monetary policy drove market volatility during the period. Initially investors were concerned with data showing stubbornly high inflation and the prospect of additional interest rate hikes. However, during the final days of the quarter bank failures from Silicon Valley Bank, Signature Bank, and Credit Suisse, dramatically changed market expectations towards monetary policy and the impact that a banking crisis could have on the broader economy. As a result, shorter term Treasury yields fell, and large cap growth stocks rallied in a flight to quality. The view was that growth companies would be the biggest beneficiaries of lower rates, a reversal of the headwinds faced throughout 2022. Technology stocks were by far the leading contributors to broad market performance during the quarter while value stocks and dividend payers lagged. Excluding the technology sector, the S&P 500 Index return would have only been 2.70% during the period.
Recapping quarterly results, the broad-based Russell 3000 Index advanced 7.18%. Growth stocks significantly outperformed value stocks to start out the year, as the Russell 3000 Value Index returned just 0.91% versus a return of 13.85% for the Russell 3000 Growth Index. Relative performance improved going up in market capitalization (size) as large caps advanced more than small caps in the quarter. Larger cap stocks returned 7.46%, as measured by the Russell 1000 Index, compared to the smaller cap Russell 2000 Index return of 2.74%, while the Russell Microcap Index returned -2.83% in the quarter.
(As of 3/31/23) — The Buffalo Flexible Income Fund declined -0.97% for the quarter compared to a gain of 7.18% for the Russell 3000 Index. The energy sector declined during the period while technology stocks rallied significantly. The fund is overweight energy and underweight technology relative to the benchmark, primary headwinds to performance results during the quarter.
The top three contributors to the fund’s performance were Microsoft Corporation, Lionsgate and Qualcomm. Shares of Microsoft advanced during the quarter driven by better than expected earnings and positive views surrounding the release of its AI product. Lionsgate reported strong earnings which was mainly driven by the film and TV-studio businesses and partly helped by the library revenue. The Starz business continues to lose subscribers and management is moving forward with a plan to split the company into two separate stand alone businesses, which should be completed in 2023. Management reiterated its full year guidance. Qualcomm reported earnings that were roughly in-line with estimates during the quarter and revised down its second quarter earnings. The share appreciation reflects investor expectations that the semiconductor inventory correction should be resolved by the back half of calendar 2023 as well as improved growth associated with China reopening.
The top three detractors were APA, ConocoPhillips and Pfizer. APA and Conoco were negatively impacted by the declines in energy prices as both crude oil and natural gas declined during the quarter. Crude oil declines reflect potentially lower demand associated with an anticipated recession later in the year, while natural gas prices declined due to mild weather and expected demand declines in the back half of the year due to an economic slowdown. Pfizer’s top and bottom-line guidance for 2023 was significantly reduced below expectations during the quarter due to declines in its COVID franchise. Additionally, management announced it was acquiring Seagen, which some investors viewed negatively.
(As of 3/31/23) — Looking ahead global economies continue to slow. While many companies have already lowered financial guidance for the year, we could be bracing for an earnings season where companies’ lower guidance for 2023. Despite the uncertainty, we remain focused on wide moat, large capitalization dividend-paying companies trading at reasonable valuations, in our view. As always, the fund will continue to emphasize competitively advantaged companies that can be purchased at a fair value. We will be ready to take advantage of opportunities created by stock market volatility using market declines as attractive entry points for long-term investors.
|Buffalo Flexible Income Fund|
|Full Fund Holdings||12/31/22|
|Statement of Additional Information||3/8/23|
|Tax Guide - 2022||1/8/23|
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