Quick Facts
InvestorInstitutional
Ticker:BUFHXBUIHX
Inception Date:5/19/19957/1/2019
Expense Ratio:1.03%0.89%
Total Net Assets:$208.63 Million  (6/30/20)
Category:High Yield Bond
Benchmark:ICE BofAML U.S. High Yield
Dividend Distribution:Monthly
Related Material:
   Fund Fact Sheet Q2 2020
   PM Commentary Q2 2020
   Summary Prospectus
Fund Objective & Investment Process

The investment objective of the Buffalo High Yield Fund is primarily current income, with long-term growth of capital as a secondary objective. The High Yield Fund normally invests at least 80% of its net assets in higher-yielding, higher-risk debt securities rated below investment grade by the major rating agencies (or in similar unrated securities), commonly known as “junk bonds”. Debt securities can include fixed and floating rate bonds as well as bank debt and convertible debt securities.

While the Fund maintains flexibility to invest in bonds of varying maturities, the Fund generally holds bonds with intermediate-term maturities. With respect to the remaining 20% of the Fund’s net assets, the Fund may invest in investment grade debt securities, U.S. Treasury Securities (typically with maturities of 60 days or less), money market funds, and equity investments, including dividend paying stocks and convertible preferred stocks.
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Our team brings many years of credit research experience to the bond market. We are proud to have provided our shareholders with what we believe is a conservative approach to investing in high yield bonds since 1995.

Jeff Sitzmann, Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFHX based on risk-adjusted returns among 623 High Yield Bond funds as of 8/31/20.

Performance (%)

As of 8/31/203 MOYTD1 YR3 YR5 YR10 YR15 YR20 YRSince Inception
(5/19/95)
BUFFALO HIGH YIELD FUND - Investor7.722.075.554.414.545.715.846.476.89
BUFFALO HIGH YIELD FUND - Institutional7.712.225.774.554.695.866.006.627.05
  ICE BofAML U.S. High Yield Index6.840.753.714.516.286.706.957.027.06
  Lipper High Yield Bond Funds Index6.47-0.932.243.685.096.055.775.535.79
  Morningstar High Yield Bond Category6.21-0.122.603.464.915.705.735.835.78
As of 6/30/203 MOYTD1 YR3 YR5 YR10 YR15 YR20 YRSince Inception
(5/19/95)
BUFFALO HIGH YIELD FUND - Investor10.00-3.770.242.543.115.265.526.316.69
BUFFALO HIGH YIELD FUND - Institutional10.09-3.670.342.673.255.415.676.476.84
  ICE BofAML U.S. High Yield Index9.61-4.78-1.102.944.586.486.686.806.87
  Lipper High Yield Bond Funds Index9.27-6.34-2.702.173.485.825.525.275.60
  Morningstar High Yield Bond Category8.62-5.17-1.892.043.385.495.505.615.61
For performance prior to 7/1/19 (Inception Date of Institutional Class), performance of the Investor Class shares is used and includes expenses not applicable and lower than those of Investor Class shares.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.
3 Year Risk Metrics
BUFHX vs ICE BofAML U.S. High Yield Index (As of 6/30/20)
Upside Capture83.93
Downside Capture86.97
Alpha-0.18
Beta0.92
Sharpe Ratio0.10
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
2020 Distribution Dates:

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


Record
Date
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
9/17/209/18/20$11.13 (Inv)

$11.11 (Inst)
$0.03853089

$0.03995890
-

-
-

-
$0.03853089

$0.03995890
8/17/208/18/20$11.05 (Inv)

$11.04 (Inst)
$0.03552847

$0.0369217
-

-
-

-
$0.03552847

$0.0369217
7/17/207/20/20$10.74 (Inv)

$10.72 (Inst)
$0.03443835

$0.03707609
-

-
-

-
$0.03443835

$0.03707609
6/17/206/18/20$10.71 (Inv)

$10.69 (Inst)
$0.03298246

$0.03762718
-

-
-

-
$0.03298246

$0.03762718
5/18/205/19/20$10.11 (Inv)

$10.10 (Inst)
$0.06052835

$0.06238986
-

-
-

-
$0.06052835

$0.06238986
4/17/204/20/20$10.07 (Inv)

$10.06 (Inst)
$0.02440948

$0.02566136
-

-
-

-
$0.02440948

$0.02566136
3/17/203/18/20$9.46 (Inv)

$9.45 (Inst)
$0.02418153

$0.02551335
-

-
-

-
$0.02418153

$0.02551335
2/18/202/19/20$11.30 (Inv)

$11.29 (Inst)
$0.04216331

$0.04290937
-

-
-

-
$0.04216331

$0.04290937
1/17/201/21/20$11.27 (Inv)

$11.26 (Inst)
$0.03963858

$0.04127700
-

-
-

-
$0.03963858

$0.04127700
For historical distributions, click here.

Portfolio

Portfolio Characteristics
(As of 6/30/20) 
 
# of Holdings136
3-Yr Annualized Turnover Ratio31.83%
Average Duration3.17 years
Average Maturity6.30 years
30-day SEC Yield4.65%
Top 10 Holdings
Name of Holding% of Net
Assets
Cerence (Term Loan B, 9/30/24)2.83%
Consolidated Communications (6.500%, 10/1/22)2.35%
MacDonald Dettwiler (Term Loan B, 10/4/24)2.25%
Builders FirstSource (5.000%, 3/1/30)1.93%
Brunswick (7.375%, 9/1/23)1.92%
Nuance Communications (1.500% , 11/1/35)1.87%
Quad Graphics (7.000%, 5/1/22)1.77%
Phillips Van Heusen (7.750%, 11/15/23)1.73%
Treehouse Foods (6.000%, 2/15/24)1.60%
Cogent Communications (5.625%, 4/15/21)1.59%
TOP 10 HOLDINGS TOTAL19.84%
As of 3/31/20. 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.
Asset Allocation
Percentages of Total Assets as of 6/30/20. Allocation percentages may not equal 100% due to rounding.
Sector Weighting
As of 6/30/20. 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.
Duration
Duration Breakout (%)*
10+ Years0.00
7-10 Years2.73
5-7 Years7.91
3-5 Years33.11
1-3 Years27.25
0-1 Years9.63
*Excludes Bank Loans and Converts.
Credit Quality
Quality Breakout (%)
Baa5.75
Ba18.29
B43.14
Caa7.80
Unassigned25.02
All ratings are as of 6/30/20. Moody’s is the rating source for the Quality Breakout Table. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO), such as Moody’s or Standard & Poor’s. The firm evaluates the of credit worthiness of an issuer with respect to debt obligations, including specific securities, money market instruments, or other bonds. Ratings are measured on a scale that generally ranges from Aaa (highest grade) to C (lowest grade); ratings are subject to change without notice. Unassigned rating indicates that the debtor was not rated by an NRSRO and should not be interpreted as indicating low quality.

Management

Paul Dlugosch, CFA
Portfolio Manager

22 Years of Experience

 View full bio

Jeff Sitzmann, CFA
Portfolio Manager

32 Years of Experience

 View full bio

Jeff Deardorff, CFA
Portfolio Manager

21 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 6/30/20) — After suffering a massive correction in the 1st quarter, driven by the COVID-19 outbreak and plunging crude oil prices, the U.S. high yield sector delivered a substantial rally in the 2nd quarter — the strongest since the 3rd quarter of 2009. While not fully recapturing the losses of the 1st quarter, aggressive monetary and fiscal stimulus implemented in April and May fueled the rebound in high yield bonds from the March low point. The 10-year Treasury Bond returned 0.68% during the quarter while common stocks, as measured by the S&P 500 Index, logged a return of 20.54%.

Following $16.7 billion in outflows from a flight to quality during the preceding quarter, high yield funds saw a record cash inflow of $47.3 billion in the June quarter. Recognizing the influx of capital, high yield issuers brought a record $145.5 billion in high yield new issuance, easily exceeding the previous record of $121.2 billion set in the 2nd quarter of 2014. In the first six months of 2020, new issuance volume totaled $218.4 billion, up 55% from the $140.5 billion in the first six months of 2019. According to JP Morgan, BB-rated issues accounted for the bulk of activity (58%), and tilted heavily toward sectors impacted by the virus. The heaviest volume in period came from Gaming/Leisure and Lodging ($21.6 billion, 15%), Autos ($13.3 billion, 9%), and Energy ($12.0 billion, 8%).

During the quarter, the 10-year Treasury bond yield was essentially flat at 0.66% following the 125 basis point (bps) contraction in the 1st quarter, and remains near record lows. Excluding transportation, every industry and sector in the U.S. high yield universe and every credit rating silo produced positive returns. According to data from JP Morgan, the lower quality end of the high yield credit spectrum (i.e., CCC and non-rated) performed better than the higher end of the quality spectrum. The non-rated segment produced the largest gain of 13.81% and the higher-rated split BBB segment was the worst performer, but still produced a solid 7.36% gain.

According to data from JP Morgan, the U.S. high yield market’s spread to worst for the period was 722 bps, 227 bps tighter than the preceding quarter and 111 bps wider than its 20-year historical average of 611 bps. The yield to worst for the high yield market at quarter end was 7.57%, below the 20-year average of 8.64%, and below the yield of 10.00% at the end of the 1st quarter.

PERFORMANCE COMMENTARY

(As of 6/30/20) — The Buffalo High Yield Fund (BUFHX) advanced10.00% over the quarter and outperformed the ICE BofAML U.S. High Yield Index, which gained 9.61%. The Fund also outperformed the peer group Lipper High Yield Bond Funds Index return of 9.27%.

Fund Composition by Asset Class
6/30/199/30/1912/31/193/31/206/30/20
Straight Corporates64.7%65.0%55.6%60.1%55.4%
Convertibles12.1%13.4%17.7%16.7%20.1%
Bank Loans15.2%16.0%16.2%19.1%16.6%
Preferred Stock0.0%0.0%1.1%1.3%1.7%
Convertible Preferred0.0%0.0%0.0%0.0%0.0%
Common Stocks1.4%1.2%1.7%1.0%0.6%
Cash6.5%4.4%7.6%1.8%5.6%
Total100.0%100.0%100.0%100.0%100.0%
Approximate Rate and Contribution of Return from the Fund’s Various Asset Classes in 2Q20
Unweighted ReturnContribution to Return
Straight Corporates8.6%5.00%
Convertibles13.5%2.51%
Bank Loans10.7%1.91%
Preferred Stocks36.6%0.55%
Convertible Preferred0.0%0.00%
Common Stocks32.1%0.26%
Total10.00%

TOP CONTRIBUTORS

All but a handful of securities delivered positive returns during the period, with the three top contributors being Cerence 3.000% convertible bonds, MPLX 6.875% corporate bonds, and Nuance Communications 1.500% convertible bonds. The Fund participated in the new issuance of the Cerence 3.000% convertible bonds, which increased over 25% in their first week of trading. MPLX bonds, one of the Fund’s worst performers in the preceding quarter, recovered significantly in the 2nd quarter as crude oil prices recovered and the energy sector as a whole rebounded. Nuance Communications convertible bonds rallied on the back of the common stock, which increased 51% during the quarter as investors favored the technology sector.

TOP DETRACTORS

Specific securities that detracted the most from performance include Brunswick 7.375% corporate bonds, Townsquare Media 6.500% corporate bonds, and J2 Global 1.750% convertible bonds. Brunswick bonds were one of the Fund’s best performers in the 1st quarter as higher quality issues were safe havens for investors, but the bonds experienced some selling pressure this period as capital was redirected into riskier securities that had been punished starting the year. Townsquare Media declined due to the negative economic impact of the pandemic resulting in the pull back of radio advertising. This has caused leverage to increase and may require the company to get a waiver on its revolver covenants. The company also took a non-cash impairment charge due to an accounting error. J2 Global was negatively-impacted by a hedge fund short-sell report released in June. In response, management issued a firm rebuttal addressing the assertions and pointed out multiple inaccuracies in the report.

OUTLOOK

(As of 6/30/20) — Until March, the United States had been enjoying a growing economy with modest inflation that created a favorable environment for risky assets. However, by early March, the COVID-19 pandemic and plummeting crude oil prices wreaked havoc on the markets. The U.S. high yield default rate increased to a 3-year high of 3.54% in March, an increase of 91 bps from the December 2019 level, and slightly above the long-term average of 3.44%. Unfortunately, the trend continued during the 2nd quarter with the default rate increasing to 6.61%, a 10-year high. During the quarter, 47 companies defaulted on a record-breaking $82.2 billion of debt.

We are concerned first and foremost about the ongoing COVID-19 pandemic and the fallout on global economies. Previous concerns such as trade talks with China and the upcoming presidential election have become a secondary focus. We are managing the Fund cautiously yet actively, focusing on high-quality issuers with defensive business models and manageable credit metrics. We ended the quarter with 136 positions, unchanged from the previous quarter’s level (excluding cash). We will continue to deploy cash in opportunities that we believe offer the most appealing risk/reward tradeoff with a bias toward shorter durations and less levered credits. Additionally, we believe bank loans offer a more defensive position as they provide senior positioning in the capital structure. Finally, we continue to look for opportunities in convertible bonds and preferred stocks.

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.

Literature

General Account
Forms
Investor
Class
Institutional
Class
Both
  New Account Application
  New Account Application - Entity
  Change or Add Account Details
  Cost Basis Method Election
  Power of Attorney
Individual Retirement Account (IRA) Forms
  RMD Waiver   NEW
  IRA Account Application
  IRA Beneficiary Addition / Change
  IRA Required Minimum Distribution (RMD)
  IRA / Qualified Plan Distribution Request
  IRA Transfer
Coverdell Education Savings Accounts (ESA) Forms
  Coverdell ESA Application
  Coverdell ESA Distribution Request
  Coverdell ESA Transfer
Retirement Information
  Retirement Savings Options for Individuals

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 High Yield Fund (BUFHX) received 4 stars among 623 for the 3-year, 3 stars among 535 for the 5-year, and 3 stars among 346 High Yield Bond funds for the 10-year period ending 8/31/20.

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.

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.