Flexible Income Fund
|As of 6/24/2022|
|Total Net Assets:||$490.02 Million (3/31/22)|
|Morningstar Category:||Allocation – 85%+ Equity|
|Benchmark Index:||Russell 3000|
Fund Fact Sheet Q1 2022
PM Commentary Q1 2022
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 1,145 Large Value funds as of 5/31/22.
|As of 5/31/22||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||5.65||5.13||18.24||14.29||10.49||8.86||7.05||7.95||7.72|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||5.74||5.25||18.48||14.46||10.65||9.03||7.21||8.11||7.88|
|Russell 3000 Index||-6.15||-13.89||-3.68||15.60||12.75||14.00||8.85||9.21||10.22|
|Morningstar Moderately Aggressive Target Risk Index||-5.55||-11.16||-7.44||9.22||7.72||9.03||-||-||-|
|Lipper Mixed-Asset Target Allocation Moderate Funds Index||-4.82||-9.66||-5.35||7.90||6.41||7.36||5.10||5.92||6.87|
|Morningstar Large Value Category||-0.60||-3.09||2.99||13.68||10.06||11.72||6.77||7.61||-|
|As of 3/31/22||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||20 YR||Since Inception|
|BUFFALO FLEXIBLE INCOME FUND - Investor||3.92||3.92||23.81||11.94||10.20||8.47||7.41||7.56||7.72|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||4.02||4.02||24.00||12.10||10.37||8.64||7.57||7.72||7.88|
|Russell 3000 Index||-5.61||-5.61||10.45||16.35||13.43||12.18||8.00||7.34||8.67|
|Morningstar Moderately Aggressive Target Risk Index||-5.07||-5.07||4.01||10.92||9.73||8.96||-||-||-|
|Lipper Mixed-Asset Target Allocation Moderate Funds Index||-4.89||-4.89||3.67||9.43||7.94||7.42||5.76||6.08||7.12|
|Morningstar Allocation 85%+ Equity Category||-6.52||-6.52||4.52||12.59||10.37||9.94||6.69||7.00||7.68|
|BUFFALO FLEXIBLE INCOME FUND - Investor||10.31||16.68||3.59||-1.97||9.90||13.21||-7.00||18.76||-2.24||30.00|
|BUFFALO FLEXIBLE INCOME FUND - Institutional||10.47||16.85||3.75||-1.83||10.07||13.38||-6.86||18.87||-2.10||30.21|
|Russell 3000 Index||16.42||33.55||12.56||0.48||12.74||21.13||-5.24||31.02||20.89||25.66|
|Morningstar Moderately Aggressive Target Risk Index||14.33||20.18||4.97||-2.40||10.21||18.89||-6.74||22.95||13.51||14.04|
Hypothetical Growth of $10,000
Net Investment Income, if any – Record Date (6/17/22); Payment Date (6/20/22)
Net Investment Income, if any – Record Date (7/18/22); Payment Date (7/19/22)
Net Investment Income, if any – Record Date (8/17/22); Payment Date (8/18/22)
Net Investment Income, if any – Record Date (9/19/22); Payment Date (9/20/22)
Net Investment Income, if any – Record Date (10/17/22); Payment Date (10/18/22)
Net Investment Income, if any – Record Date (11/17/22); Payment Date (11/18/22)
Capital Gains, if any – Record Date (12/2/22); Payment Date (12/5/22)
Net Investment Income, if any – Record Date (12/19/22); Payment Date (12/20/22)
|(As of 3/31/22)||
|# of Holdings||55|
|Median Market Cap||$63.33 B|
|Weighted Average Market Cap||$339.53 B|
|3-Yr Annualized Turnover Ratio||3.50%|
|30-day SEC Yield||1.70%|
Top 10 Holdings
|Holding||Ticker / Maturity||Sector||% of Net
|Costco Wholesale||COST||Consumer Staples||3.65%|
|Digital Realty Trust||DLR||Real Estate||3.23%|
|Eli Lilly & Co||LLY||Health Care||3.08%|
|Johnson & Johnson||JNJ||Health Care||2.75%|
|TOP 10 HOLDINGS TOTAL||39.35%|
CAPITAL MARKET OVERVIEW
(As of 3/31/22) — The equity market, as measured by the S&P 500 Index, suffered its second quarterly decline since the onset of the COVID-19 pandemic, over two years ago, producing a return of -4.60% during the January–March period. Weak capital market performance can be largely attributed to the Federal Reserve’s decision to raise interest rates and reduce the size of its balance sheet, also known as quantitative tightening. Other headwinds, including the war in Ukraine, significant inflation, and persistent supply chain bottlenecks, only added to the backdrop of uncertainty for domestic and global markets.
The broad-based Russell 3000 Index fell -5.28% in the quarter. Value stocks outperformed growth stocks by a large amount, as the Russell 3000 Value Index returned -0.85% compared to a decline of -9.25% for the Russell 3000 Growth Index. Large cap stocks fell less than smaller cap stocks during the quarter, as the Russell 1000 Index declined -5.13%, followed by a return of -5.68% for the Russell Midcap Index, and -7.53% for the small cap Russell 2000 Index. Energy stocks surged during the period on rising oil prices while the more defensive Utilities and Telecommunication Services sectors were also modestly positive. The Consumer Discretionary and Technology areas of the market were the largest underperformers due to inflation and rising rates.
(As of 3/31/22) — The Buffalo Flexible Income Fund (BUFBX) produced a return of 3.92% for the quarter, outperforming the Morningstar Moderately Aggressive Target Risk Index return of -5.07% and the Russell 3000 Index return of -5.61%.
The top three contributors to the Fund’s performance during the period were Chevron, APA Corporation, and ConocoPhillips. The three companies are involved in the oil and gas industries and benefited from rising commodities prices following increased demand and supply constraints, which was exacerbated by the Russia/Ukraine conflict.
Partially offsetting the gains above were Microsoft, Digital Realty, and Qualcomm, which were the top three detractors from the Fund’s results. Although all three companies reported good earnings during the quarter, their share prices moved lower as rising interest rates have tempered overall valuations for technology companies.
(As of 3/31/22) — Measures of inflation have reached levels not seen in decades, as demand has bounced back, while supply chain issues (bottlenecks, chip shortages, lack of workers, etc.) have restrained supplies. Businesses also lost productivity as COVID-19 continued to lead to employee absenteeism. Additionally, inflation and supply chain issues have been impacted by sanctions against Russia following their invasion of Ukraine. As a result, the Federal Reserve (the “Fed”) has adopted a more hawkish approach toward interest rates and a reduction in their balance sheet. As the Fed implements these programs, it will attempt to strike a delicate balance of curbing inflation without causing a recession. Stock market performance is likely to reflect the view of how well the Fed is managing the situation.
Despite the uncertainty, we remain focused on identifying competitively-advantaged, wide-moat companies trading at reasonable valuations. 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.
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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