Flexible Income Fund
|Total Net Assets:||$412.32 Million (3/31/20)|
|Category:||Large Cap Value|
|Benchmark:||Morningstar Moderately Aggressive Target Risk|
Fund Fact Sheet Q1 2020
PM Commentary Q1 2020
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 155 Allocation 85%+ Equity funds as of 4/30/20.
|As of 4/30/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||-12.82||-14.21||-9.97||2.07||2.41||6.05||5.98||5.43||6.52|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||-12.73||-14.11||-9.84||2.22||2.56||6.21||6.14||5.59||6.68|
|Morningstar Moderately Aggressive Target Risk Index||-10.47||-11.31||-3.94||4.29||4.64||7.19||6.69||5.74||-|
| 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||-7.11||-7.18||-0.95||3.84||3.93||6.13||5.34||4.86||6.59|
|Morningstar Allocation 85%+ Equity Category||-13.52||-14.65||-8.06||2.11||3.08||7.24||5.88||4.54||6.67|
|As of 3/31/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||-24.32||-24.32||-19.63||-2.34||0.22||4.89||5.01||4.69||6.02|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||-24.24||-24.24||-19.51||-2.19||0.37||5.05||5.16||4.84||6.18|
|Morningstar Moderately Aggressive Target Risk Index||-18.59||-18.59||-9.60||1.76||3.23||6.43||5.95||5.16||-|
| 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||-13.19||-13.19||-5.43||1.88||2.74||5.55||4.80||4.46||6.33|
|Morningstar Allocation 70-85% Equity Category||-19.68||-19.68||-11.75||0.00||1.66||5.80||5.04||4.01||6.16|
Hypothetical Growth of $10,000
Record Date: June 17, 2020 | Payable Date: June 18, 2020
Record Date: July 17, 2020 | Payable Date: July 20, 2020
Record Date: August 17, 2020 | Payable Date: August 18, 2020
Record Date: September 17, 2020 | Payable Date: September 18, 2020
Record Date: October 19, 2020 | Payable Date: October 20, 2020
Record Date: November 17, 2020 | Payable Date: November 18, 2020
Record Date: December 17, 2020 | Payable Date: December 18, 2020
|(As of 3/31/20)|| |
|# of Equity Holdings||58|
|# of Fixed Holdings||4|
|Median Market Cap||$40.19 B|
|Weighted Average Market Cap||$179.21 B|
|3-Yr Annualized Turnover Ratio||4.51%|
|Average Duration||1.89 years|
|Average Maturity||10.37 years|
|30-day SEC Yield||3.28%|
Top 10 Holdings
|Holding||Ticker||Sector||% of Net|
|Procter & Gamble||PG||Consumer Staples||2.75%|
|Johnson & Johnson||JNJ||Health Care||2.72%|
|Coca Cola||KO||Consumer Staples||2.58%|
|Costco Wholesale||COST||Consumer Staples||2.49%|
|TOP 10 HOLDINGS TOTAL||30.29%|
CAPITAL MARKET OVERVIEW
(As of 12/31/19) — The combination of a U.S. Federal Reserve (Fed) interest rate cut, an improving economic outlook, and easing trade tensions, sent equity markets sharply higher in the 4th quarter. The S&P 500 Index advanced 9.10% during the period, which brought the full-year (2019) gain to 31.49%. The Fed cut interest rates three times in 2019, erasing the brief yield curve inversion and assuaging fears of a recession. The economy continued to add new jobs at a strong pace and unemployment declined to 3.5%. Consumer spending remained healthy, and there is optimism for better business investment following the announced “phase one” trade deal with China.
Similar to the S&P 500 Index, the broad-based Russell 3000 Index returned 9.04% during the quarter. Growth outperformed value, as the Russell 3000 Growth Index returned 10.62% compared to a return of 7.41% for the Russell 3000 Value Index. Smaller companies outperformed larger companies, as one would expect in a “risk-on” period. The Russell Microcap Index surged 13.45% and the Russell 2000 Index advanced 9.94%. Large company benchmarks such as the Russell 1000 Index advanced 9.04% while the Russell Midcap Index produced a return of 7.06%. Technology and Health Care were the best performing sectors in the quarter, while more defensive areas of the market lagged such as Real Estate and Utilities. Higher long-term interest rates weighed on high-quality bond proxies – the safe haven 10-year U.S. Treasury Bond produced a return of -1.74% during the quarter.
(As of 12/31/19) — The Buffalo Flexible Income Fund produced a return of 4.64% for the quarter, underperforming the Morningstar Moderately Aggressive Target Risk Index return of 6.87%. The Fund’s peer group index, the Lipper Mixed-Asset Allocation Moderate Funds Index, produced a return of 4.69% for the quarter.
The equity portion of the portfolio produced a return of 4.62%. The top three contributors to the Fund’s performance during the quarter were Home Depot, Schlumberger, and McDonald’s. Relative underperformance compared to the Morningstar U.S. Large Cap Index was primarily driven by stock selection in the Information Technology, Consumer Staples, and Industrial sectors. Underperformance within the Information Technology segment was driven by an underweight position to the sector and the fact that Fund did not own Apple, a large weight in the benchmark, which negatively-influenced relative performance. The underperformance within the Consumer Staples segment was driven by security selection and included General Mills, Clorox, and Kimberly Clark. Meanwhile, Boeing drove underperformance within the Industrial sector. The company has been negatively impacted by the grounding of the 737 MAX airplane and the uncertainty of when it will return to production, delivery, and service.
(As of 12/31/19) — The healthy gains in the stock market during the quarter were primarily driven by expansion in market valuation metrics, as corporate earnings have been relatively flat. Key drivers for further stock market advancement are likely to be driven by how Middle East conflicts play out, the upcoming domestic election cycle, and improved corporate earnings growth.
We continue to be diligent in our process of seeking wide moat, large capitalization, 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 find ourselves confronted with relatively low spread and yield levels. 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.
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.
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.
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. ©2020 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.