Flexible Income Fund

(As of 6/30/19) — The S&P 500 Index posted its best 1st half of a calendar year since 1997, rising 18.54% from January 1 to June 30. During the most recent quarter, the index was in negative territory for the first two months (April and May) then rose 7.05% in the final month, marking the best June since 1955, and finished with a return of 4.30% for the quarter.

Central banks and trade policies continued to drive financial markets during the period. The threat of increasing tariffs against China and Mexico contributed to the sell-off early in the quarter, and the June rally was largely a result of dovish central bank commentary, leading investors to anticipate rate cuts in the coming months.

The Russell 3000 Index returned 4.10% in the quarter. By style, growth outpaced value, with the Russell 3000 Growth Index up 4.50% and the Russell 3000 Value Index up 3.68%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 4.25%, just ahead of the Russell Mid Cap Index return of 4.13%. The Russell 2000 returned 2.10% during the quarter. Financials were the best performing sector, followed by Materials and Information Technology. Energy was the only sector to post a negative return, driven by a decline in oil prices. Health Care and Real Estate also underperformed relative to the broad market.

(As of 6/30/19) — The Buffalo Flexible Income Fund produced a return of 0.37% for the quarter and underperformed the primary prospectus benchmark (60% Morningstar U.S. Large Cap Index / 40% ICE BofAML High Yield Index) return of 3.69%. The Fund’s peer group index, the Lipper Mixed-Asset Target Allocation Moderate Funds Index, produced a return of 3.15% for the quarter.

EQUITIES PERFORMANCE
The equity portion of the portfolio underperformed the S&P 500 Index with a return of 0.61% for the quarter. The relative underperformance was primarily driven by the Energy, Consumer Discretionary, and Industrials sectors. The underperformance within Energy was primarily driven by sector allocation as the Fund was overweight the worst performing sector in the index.

The underperformance within the Consumer Discretionary sector was primarily due to security selection. Lions Gate Entertainment was the primary detractor from Fund performance due to weak films and fears over disintermediation.

Relative underperformance within the Industrials segment was due to security selection. Specific securities that held back performance were Pitney Bowes and Boeing. Pitney Bowes was negatively impacted by the secular trend away from traditional mail while Boeing was adversely impacted by the grounding of the 737 MAX airplanes due to safety issues.

Overall the top three contributors to the Fund’s performance during the quarter were Microsoft, Qualcomm, and Waste Management while the top three detractors were Dupont, Pitney Bowes, and Lions Gate Entertainment.

FIXED INCOME PERFORMANCE
The fixed income portion of the Fund represented roughly 5% of the Fund. The best performers within the fixed income portion were the Medicines Corporation 2.5% convertible bonds and the Everi Payments 7.5% senior notes. The Medicines convertible bonds benefited from positive clinical trial data for its cholesterol drug, inclisirin, while Everi Payments benefited from positive underlying fundamentals and news that the company was exploring strategic alternatives, including a possible sale.

(As of 6/30/19) — The strong gains in the stock market for the 1st half of the calendar year have been primarily driven by expansion in market valuation metrics, as earnings have been relatively flat. Aiding the valuation expansion has been The Federal Reserve’s (the “Fed”) dovish pivot on monetary policy indicating that the next interest rate action will be down. The Fed has become concerned with inflation running below their targeted levels and slowing economic growth. Vagaries regarding trade policy (tariffs and trade agreements), evolving geopolitical risks, and the divided congress further limit their forecasting abilities. A key driver for further stock market advancement is likely to be impacted by how aggressive the Fed cuts rates (0.25% or 0.50%) and how many cuts they decide to make this year. As always, we appreciate your confidence in our investment capabilities over the long term.