Quick Facts
Ticker:BUFBX
Inception Date:8/12/1994
Total Net Assets:$590.58 Million  (12/31/18)
Expense Ratio:1.01%
Dividend Distribution:Monthly
Category:Large Cap Value
Benchmark:60% Morningstar U.S. Large Cap

40% ICE BofAML U.S. High Yield
Related Material:
   Fund Fact Sheet Q4 2018
   PM Commentary Q4 2018
   Summary Prospectus
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.

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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

Morningstar Rating

       

Overall Morningstar Rating™ based on risk-adjusted returns among 322 Allocation–70% to 85% Equity funds as of 1/31/19.

Investment Style

Performance (%)

As of 1/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND-0.157.08-3.498.825.0310.177.037.08
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
0.52
-0.04
1.37
6.39
7.59
4.59
-0.60
-2.04
1.57
12.33
14.24
9.46
8.55
11.17
4.61
13.22
14.76
10.91
7.74
8.16
7.10
8.56
9.33
7.40
  BofA ML Combined Index
    S&P 500 Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
0.70
0.26
1.37
6.64
8.01
4.59
-0.76
-2.31
1.57
12.20
14.02
9.46
8.42
10.96
4.61
13.36
15.00
10.91
7.75
8.19
7.10
8.71
9.59
7.40
  Lipper Mixed-Asset Target Allocation Moderate Funds Index1.795.21-2.747.815.219.015.406.75
  Morningstar Allocation--70% to 85% Equity Category1.186.90-5.109.165.5310.496.116.89
As of 12/31/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND-11.74-7.00-7.004.993.289.276.676.80
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
-9.84
-13.29
-4.67
-2.97
-3.44
-2.26
-2.97
-3.44
-2.26
8.68
9.62
7.27
6.80
8.78
3.82
12.17
12.96
10.99
7.41
7.75
6.89
8.34
9.07
7.24
  BofA ML Combined Index
    S&P 500 Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
-9.98
-13.52
-4.67
-3.53
-4.38
-2.26
-3.53
-4.38
-2.26
8.46
9.26
7.27
6.62
8.49
3.82
12.27
13.12
10.99
7.42
7.77
6.89
8.48
9.31
7.24
  Lipper Mixed-Asset Target Allocation Moderate Funds Index-7.45-5.15-5.154.943.858.015.146.56
  Morningstar Allocation--70% to 85% Equity Category-11.43-7.93-7.935.033.559.095.766.62

* 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.

Hypothetical Growth of $10,000

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.

Distributions
2019 Distribution Dates:

Record Date: February 19 | Payable Date: February 20

Record Date: March 18 | Payable Date: March 19

Record Date: April 17 | Payable Date: April 18

Record Date: May 17 | Payable Date: May 18

Record Date: June 17 | Payable Date: June 18

Record Date: July 17 | Payable Date: July 18

Record Date: August 19 | Payable Date: August 20

Record Date: September 17 | Payable Date: September 18

Record Date: October 17 | Payable Date: October 18

Record Date: November 18 | Payable Date: November 19

Record Date: December 17 | Payable Date: December 18


Record
Date
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
1/17/191/18/19$14.58$0.02098656--$0.02098656
Notice on October 2018 Distribution: One of the Fund holdings, Keurig Dr. Pepper, reclassified a portion of its July dividend distribution as a return of capital rather than dividend income, which resulted in a higher-than-normal distribution to shareholders of the Buffalo Flexible Income Fund in July. The Fund opted to forego a distribution in October and resumed normal distribution payments in November.
Record
Date
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
12/17/1812/18/18$13.86$0.00583026$0.01651$0.42416$0.44650026
11/19/1811/20/18$15.00$0.02204593--$0.02204593
No distribution for October 2018
9/17/189/18/18$16.04$0.02689378--$0.02689378
8/17/188/18/18$15.86$0.05035470--$0.05035470
7/17/187/18/18$15.66$0.12908504--$0.12908504
6/18/186/19/18$15.62$0.02556148--$0.02556148
5/17/185/18/18$15.59$0.04873401--$0.04873401
4/17/184/18/18$15.51$0.01254410--$0.01254410
3/19/183/20/18$15.06$0.02352098--$0.02352098
2/20/182/21/18$14.98$0.02173024--$0.02173024
1/17/181/18/18$16.06$0.01756997--$0.01756997

For historical distributions, click here.

Portfolio

Portfolio Characteristics
(As of 12/31/18) 
 
# of Equity Holdings55
# of Fixed Holdings12
Median Market Cap$50.79 B
Weighted Average Market Cap$150.17 B
3-Yr Annualized Turnover Ratio2.54%
Average Duration2.63 years
Average Maturity4.36 years
30-day SEC Yield2.81%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
BoeingBAIndustrials4.77%
MicrosoftMSFTTechnology4.07%
IntelINTCTechnology3.30%
Exxon MobilXOMEnergy3.03%
HollyFrontierHFCEnergy2.97%
Verizon CommunicationsVZConsumer Staples2.85%
AT&TTCommunications2.81%
Royal Dutch ShellRDS/AEnergy2.79%
ConocoPhillipsCOPEnergy2.76%
Johnson & JohnsonJNJHealth Care2.75%
TOP 10 HOLDINGS TOTAL32.10%
As of 9/30/18. Top 10 Holdings for the quarter are not disclosed until 60 days after quarter end. Fund holdings are subject to change and are not recommendations to buy or sell any securities.
Sector Weighting

As of 12/31/18. 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.

Asset Allocation

As of 12/31/18. Allocation percentages may not equal 100% due to rounding.

Management

John Kornitzer
Portfolio Manager

51 Years of Experience

 View full bio

Paul Dlugosch, CFA
Portfolio Manager

22 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 12/31/18) — The 4th quarter of 2018 was a rough period for equity markets, with steep declines dragging full year returns into negative territory. The S&P 500 Index declined -13.52% during the quarter, driven by fears of tightening monetary policy, escalating trade tensions, slowing global economic growth, and margin pressure from higher labor and freight costs. Investors sought safety in government bonds, driving the yield on the 10-year Treasury down from 3.06% at the end of the 3rd quarter to 2.68% at the end of the 4th quarter.

In a reversal of the year-to-date trend, value outperformed growth in the period, as the Russell 3000 Value Index declined -12.24% compared to a -16.33% drop in the Russell 3000 Growth Index. Large companies held up better than smaller companies during the quarter, as the Russell 1000 Index fell -13.82%, the Russell Midcap Index was down -15.37%, and the small cap Russell 2000 Index was down -20.20%. The only sector to post a positive return in the 4th quarter was Utilities. Real Estate, Consumer Staples, and Health Care were down but outperformed the market. Energy was the worst performing sector, driven by steep declines in crude oil. Technology, Industrials, and Consumer Discretionary also underperformed the broad market.

PERFORMANCE COMMENTARY

(As of 12/31/18) — The Buffalo Flexible Income Fund declined -11.74% during the 4th quarter. The Fund outperformed the S&P 500 Index’s loss of -13.52% but underperformed the ICE Bank of America Merrill Lynch U.S. High Yield Index (“Index”) which declined -4.67%. The Fund’s peer group index, the Lipper Mixed-Asset Target Allocation Moderate Funds Index, produced a return of -7.45% for the quarter.

The equity portion of the portfolio declined -12.20% for the quarter but outperformed the S&P 500 Index. The relative outperformance was primarily driven by our investments in the Consumer Staples, Technology, and Health Care sectors. The outperformance within the Consumer Staples segment was driven by both the Fund’s overweight relative to the sector and security selection. The fixed income portion of the Fund declined -4.92% and slightly underperformed the Index return of -4.67%. Relative performance was driven by the Technology, Energy, and Health Care sectors.

TOP CONTRIBUTORS
Specific securities that contributed to the outperformance in the Consumer Staples sector included Proctor and Gamble, Coca Cola, and Clorox. These companies possess business models which are less cyclical relative to most other segments of the Index. Within Technology the outperformance was driven by the sector allocation impact as the Fund was underweight the poor performing sector while specific securities we own, including Intel and Microsoft, added to the relative performance results. The outperformance within Health Care was primarily due to security selection, including GlaxoSmithKline and Eli Lilly, which contributed to the relative performance.

Overall, the top three contributors to the Fund’s performance during the quarter were Proctor and Gamble, Verizon, and Coca Cola. The top individual contributors to the Fund’s fixed income performance included Nuance 5.375% senior notes, Charter 5.250% senior notes, and Transdigm 5.500% senior notes.

TOP DETRACTORS
Within the Technology sector the primary driver of underperformance was our investment in Nuance Communications convertible bonds which declined about -7% during the 4th quarter. Nuance announced plans to simplify its operating businesses by divesting its noncore imaging business (10% revenue), spinning off its automotive business, and concentrating on its core digital assistants market. Additionally, the company is currently in the process of transitioning its revenue model to subscriptions from licenses, which will likely limit sales growth in 2019. Subsequently, company management guided down revenue growth and profit margin expectations for the year.

Within Energy, the primary detractor from performance was Forum Energy Technology. Forum had historically been focused on generating free cash flow, but, in recent quarters, working capital increases have negatively impacted the company’s ability to produce free cash flow. Additionally, the macro environment negatively impacted their business as oil prices declined significantly during the quarter. Within Health Care, Medicines Company was the biggest detractor, due to lowered expectations for the PCSK9 class of drugs and questions surrounding upcoming cash needs to fund additional clinical trials for key potential drugs.

Overall, the top three detractors from the equity portion of the Fund’s portfolio performance were Schlumberger, HollyFrontier, and Hess. The largest relative detractors to the fixed income return were Medicines Company 2.500% convertible bonds, Forum Energy 6.250% senior notes, and Nuance Communications 1.500% convertible notes.

OUTLOOK

(As of 12/31/18) — As we begin the New Year, significant uncertainty about the direction of the stock market exists due to concerns about slowing global growth, the outcome of the U.S. trade dispute with China, a deceleration in corporate earnings, and the potential for continued interest rate hikes. Amidst this uncertainty, we continue to be diligent in our process of seeking income-producing securities trading at reasonable valuations by our analysis.

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. As always, we appreciate your support and confidence in our investment process over the long term.

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. 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.

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 2 stars among 322 for the three-year, 2 stars among 280 for the five-year, and 3 stars among 196 Allocation--70% to 85% Equity funds for the ten-year period ending 1/31/19.

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. 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.

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.