Flexible Income Fund
|Total Net Assets:||$444.61 Million (6/30/21)|
|Category:||Large Cap Value|
|Benchmark:||Morningstar Moderately Aggressive Target Risk Index|
Fund Fact Sheet Q2 2021
PM Commentary Q2 2021
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 151 Allocation 85%+ Equity funds as of 8/31/21.
|As of 8/31/21||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||2.75||18.77||25.06||7.11||8.58||8.16||6.94||6.95||7.38|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||2.79||18.90||25.24||7.25||8.73||8.32||7.10||7.10||7.54|
|Morningstar Moderately Aggressive Target Risk Index||3.00||12.74||24.99||12.41||12.19||10.38||8.01||8.29||-|
| Combined Index|
Morningstar U.S. Large Cap Index (60%)
ICE BofAML U.S. High Yield Index (40%)
|Lipper Mixed-Asset Target Allocation Moderate Funds Index||3.21||10.77||19.37||10.82||9.81||8.64||6.58||6.34||7.41|
|Morningstar Allocation 85%+ Equity Category||4.13||16.74||31.32||13.05||13.16||11.82||7.85||7.32||8.05|
|As of 6/30/21||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||7.84||17.67||29.92||8.10||8.67||7.80||7.05||6.73||7.39|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||7.82||17.77||30.11||8.24||8.82||7.96||7.21||6.88||7.55|
|Morningstar Moderately Aggressive Target Risk Index||5.88||10.20||32.55||12.79||12.55||9.42||8.02||7.91||-|
| Combined Index|
Morningstar U.S. Large Cap Index (60%)
ICE BofAML U.S. High Yield Index (40%)
|Lipper Mixed-Asset Target Allocation Moderate Funds Index||4.84||8.15||24.31||10.94||9.91||7.89||6.60||6.07||7.37|
|Morningstar Allocation 85%+ Equity Category||6.75||13.38||40.77||13.59||13.52||10.48||7.74||6.85||7.99|
|BUFFALO FLEXIBLE INCOME FUND - Investor||9.63||10.31||16.68||3.59||-1.97||9.90||13.21||-7.00||18.76||-2.24|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||9.79||10.47||16.85||3.75||-1.83||10.07||13.38||-6.86||18.87||-2.10|
|Morningstar Moderately Aggressive Target Risk Index||-1.93||14.33||20.18||4.97||-2.40||10.21||18.89||-6.74||22.95||13.51|
Hypothetical Growth of $10,000
— Record Date (9/17/21); Payment Date (9/20/21) – Ordinary Income & Capital Gains, if any
— Record Date (10/18/21); Payment Date (10/19/21) – Ordinary Income & Capital Gains, if any
— Record Date (11/17/21); Payment Date (11/18/21) – Ordinary Income & Capital Gains, if any
— Record Date (12/2/21); Payment Date (12/3/21) – Capital Gains, if any
— Record Date (12/17/21); Payment Date (12/20/21) – Ordinary Income, if any
|(As of 6/30/21)|| |
|# of Equity Holdings||48|
|# of Fixed Holdings||2|
|Median Market Cap||$67.09 B|
|Weighted Average Market Cap||$296.40 B|
|3-Yr Annualized Turnover Ratio||3.70%|
|Average Duration||1.28 years|
|Average Maturity||9.41 years|
|30-day SEC Yield||1.82%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net|
|Nuance Communications||11/1/35, 1.500%||Communications||3.85%|
|Costco Wholesale||COST||Consumer Staples||2.90%|
|Johnson & Johnson||JNJ||Health Care||2.89%|
|Eli Lilly & Co||LLY||Health Care||2.85%|
|Digital Realty Trust||DLR||Real Estate||2.82%|
|TOP 10 HOLDINGS TOTAL||34.68%|
CAPITAL MARKET OVERVIEW
(As of 6/30/21) — Equity markets moved higher for the fifth consecutive quarter, as the S&P 500 Index returned 8.55%, raising the year-to-date return to 15.25%. The COVID-19 vaccine rollout has helped fuel an economic comeback while corporate earnings are improving. The vaccine adoption around the world is encouraging, and over 50% of the U.S. population is now vaccinated. Capital markets continued to be supported by significant spending from Congress and aggressive monetary policy from the Federal Reserve (the Fed). The 2nd quarter was marked by outperformance of growth stocks, overcoming investor concerns of rising inflation and potential interest rate hikes in the prior quarter. Hawkish comments from the Fed replaced inflation worries with concerns about the magnitude and duration of the economic recovery. Long duration growth companies were beneficiaries as yields on the 10-Year and 30-Year Treasuries declined during the period after climbing for the previous four months.
The broad market Russell 3000 Index advanced 8.24% in the quarter. Growth stocks outperformed Value stocks, as the Russell 3000 Growth Index surged 11.38% compared to the Russell 3000 Value Index gain of 5.16%. Relative performance was correlated with market cap size in the quarter, as the large cap Russell 1000 Index returned 8.54%, the Russell Midcap Index advanced 7.50%, the small cap Russell 2000 Index returned 4.29%, and the Russell Microcap Index finished 4.14% higher.
All economic sectors produced positive returns during the period with the exception of Telecom Services. Real Estate, Information Technology, and Energy led the advance followed by Financials and Health Care. More defensive areas, such as Telecom Services, Utilities, and Consumer Staples, trailed on a relative basis.
(As of 6/30/21) — The Buffalo Flexible Income Fund (BUFBX) returned 7.82% in the quarter, compared to a return of 5.88% for the Morningstar Moderately Aggressive Target Risk Index.
The top three contributors to the Fund’s performance during the quarter were Microsoft, Nuance Communications, and Hess. Microsoft’s share appreciation reflects its market leadership positions in software, cloud computing, and gaming. Over the past year, the company has executed well, resulting in positive earnings revisions and a favorable growth outlook. Nuance Communications announced during the quarter that it had agreed to be acquired by Microsoft for a premium. Hess’ share appreciation reflects the increase in oil prices due to a resumption in travel, as the travel restrictions around the pandemic have been eased in various geographies.
The top three detractors from the portfolio’s results were Intel, Clorox, and HollyFrontier. Intel’s share price weakness reflects weak sales growth, concerns about personal computer competition, weaker gross margins, slower data center growth, and announced expansion into foundry. Clorox shares declined due to tougher comparisons, as cleaning products saw strong demand in 2020 due to the pandemic, and higher raw material prices which compressed margins. HollyFrontier shares declined in the quarter due to market skepticism around its acquisition of a West Coast refining asset (Puget Sound refinery) and the suspension of its dividend for a year to maintain balance sheet flexibility and strength.
(As of 6/30/21) — The stock market continued to advance during the quarter and ended the period at a record high. New COVID-19 infections, hospitalizations, and deaths have declined in the U.S. as vaccines have been approved and administered. This has allowed the relaxing of COVID-related closures and restrictions. Workers are gradually returning to the office, and consumers are emerging from their homes and venturing back out. The pent-up demand aided by additional fiscal stimulus checks, and continued central banks’ accommodative policies, provide a favorable tailwind for the economy. Although the Fed continues to indicate that it is holding off raising interest rates, investors are mindful for any signs of inflation. While some prices have gone up, the Fed believes these are transitory. As the year continues to unfold, investors will also be focused on the following topics: prospects for passage of an announced infrastructure agreement, vaccination rates, booster shots, how COVID-19 variants will spread or be contained, if COVID-19 lockdowns resume, and how long monetary policy will remain accommodative.
We remain focused on wide-moat, large-capitalization, dividend-paying companies trading at reasonable valuations, in our view. As stock market volatility spikes, we will look for opportunities to find companies that fit our investment criteria, as we continue to follow our process of finding new investment ideas and to be ready when market declines provide better entry points.
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.
We construct our portfolios based on our own proprietary investment strategy.
Sticking to our disciplined investment strategy ensures we maintain a consistent, balanced approach.
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