Quick Facts

(As of 6/30/17)


Inception Date
  May 19, 1995

Total Fund Assets
  $239.6 M

Expense Ratio

Benchmark Index
  BofA Merrill Lynch HY Master II


Overall Morningstar™ rating out of 590 High Yield Bond funds as of 6/30/17 (derived from a weighted average of the fund’s three-, five-, and ten-year risk adjusted return measure).



Low High

The Morningstar™ Risk vs Category rating is an assessment of the variations in a fund’s monthly returns, with an emphasis on downside variations, in comparison to the 590 funds in the High Yield Bond category, as of 6/30/17.

High Yield Fund News

Income Investing Strategies to Preserve Principal

Using techniques identified in the article, a few income funds are highlighted (including the Buffalo High Yield Fund) that pay regular dividends and preserved investors’ capital during the period before and through the Great Recession.


Investment Strategy

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.


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



(As of 6/30/17)3 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
Buffalo High Yield Fund1.683.867.923.865.526.337.077.26
BofA Merrill Lynch HY Master II2.144.9112.754.486.917.548.927.42
Lipper High Yield Bond Funds Index1.904.7212.303.486.286.067.676.07
Morningstar High Yield Bond1.744.0910.783.025.706.047.516.11
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 6/30/17)3 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
Buffalo High Yield Fund1.683.867.923.865.526.337.077.26
BofA Merrill Lynch HY Master II2.144.9112.754.486.917.548.927.42
Lipper High Yield Bond Funds Index1.904.7212.303.486.286.067.676.07
Morningstar High Yield Bond1.744.0910.783.025.706.047.516.11
Each Morningstar category average represents a universe of funds with similar objectives.
YearBuffalo High Yield FundBofA Merrill Lynch HY Master II IndexMorningstar High Yield Bond Category
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 6/30/17)

vs BofA Merrill Lynch HY Master II
Upside Capture54.23
Downside Capture38.68
Standard Deviation3.48
Sharpe Ratio1.05

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.

Growth of $10k

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.


(As of 6/30/17)

# of Holdings122
3-Yr Annualized Turnover Ratio34.52%
Average Duration3.18 years
Average Maturity5.42 years
30-day SEC Yield4.09%
Name of Holding% of Net Assets
Bankrate Inc Del (144A 6.125%)2.56%
Akorn Inc TLB2.54%
Lions Gate Entertainment Cv (1.25%)2.19%
DigitalGlobe TLB (12/16)2.13%
KCG Holdings (144A 6.875%)1.96%
Tutor Perini (7.625%)1.91%
Endo Finance (144A 5.75%)1.74%
Valeant Pharmaceuticals TLF11.67%
Triumph Group Inc New (4.875%)1.64%
Consolidated Communications (6.5%)1.64%
View Full Holdings

As of 3/31/17. Top 10 Holdings for the quarter are not disclosed until 60 days after quarter end. Those listed are for the previous quarter. Fund holdings are subject to change and are not recommendations to buy or sell any securities.

Buffalo publishes this listing of securities held as of the most recent calendar-quarter end, with a 30 or 60 day lag depending on the portfolio. Buffalo may exclude any portion of holdings from publication when deemed in the best interest of the portfolio.

The portfolio data and its presentation here may differ from the complete schedules of investments in regulatory filings due to differing accounting and reporting requirements.

As of 6/30/17. 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.

As of 6/30/17. Allocation percentages may not equal 100% due to rounding.

Duration Breakout (%)*
7-10 Years0.97
5-7 Years11.31
3-5 Years27.85
1-3 Years23.28
0-1 Years21.44
*Excludes Bank Loans and Converts.
Quality Breakout (%)
Non Rated13.99

Standard & Poor’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 D (lowest grade); ratings are subject to change without notice. Not Rated (NR) indicates that the debtor was not rated by an NRSRO and should not be interpreted as indicating low quality. All ratings are as of 3/31/17.


The Buffalo High Yield Fund posted a total return of 2.14% for the quarter ending March 31, 2017 underperforming the Bank of America Merrill Lynch High Yield Master II Index (the “Index”) which returned 2.71% during the same period.

The high yield market generated a return of 2.71% during the quarter while the yield on the U.S. 10-Year Treasury Note declined only 6 basis points (bps) and the Federal Reserve increased its target Fed Funds rate by another 25 bps in March. We believe the returns reflected the following events: (i) the failed repeal/replace of the Affordable Care Act (ii) continued improvement in the U.S. economy (with unemployment rates near cycle lows), and (iii) the Federal Reserve’s reassurance that a measured and gradual set of rate hikes through 2018 is still the game plan.

According to data from JP Morgan, high yield mutual funds experienced negative outflows during the first quarter of about $7.4 billion compared to inflows of roughly $600 million in the prior quarter. The high yield new issuance calendar totaled $98.7 billion in the quarter which was up significantly from the prior quarter’s $52 billion.


During the quarter, the yield on the 10-Year Treasury Note decreased slightly from 2.45% to 2.39% while high yield spreads compressed 20 basis points to 456 bps over the 10 Year-Treasury according to JP Morgan. As mentioned above, bullish sentiment on the U.S. economy parlayed with a fairly dovish stance from the Fed, gave investors confidence that high yield was still a relatively attractive asset class. According to data from JP Morgan, the best performing sector during the quarter was Healthcare (+4.33%) due to the failed House vote on the Affordable Care Act (Obamacare) repeal/replace in March. Also, the best performing sectors in the high yield market during the quarter continued to be the lower quality securities as the CCC segment returned 4.28% followed by the single B segment return of 2.33% and the BB return of 2.02%. The Fund’s high yield bond allocation is focused on the higher credit quality segments of the market which is mostly comprised of the BB and B segments. This quality bias largely explains our underperformance during the quarter.

The U.S. high yield market’s spread to worst as of March 31, 2017 was 456 bps which was 20 bps tighter than the preceding quarter and 297 bps below the same time last year. The yield to worst for the high yield market at 3/31/17 was approximately 6.24% versus 8.80% last year at this time.

The fund’s cash balance at the end of the quarter was 9.3% which is up from the prior quarter of 7.6% due to called bonds and selling activity by our management team. The funds composition by asset class at quarter end and over the previous four quarters was as follows:

Straight Corporates65.1%66.8%71.1%65.5%63.6%
Bank Loans8.4%10.6%11.2%11.5%12.5%
Convertible Preferred0.8%1.3%1.5%1.6%0.9%
Common Stocks2.9%2.8%0.0%0.0%0.5%

The approximate rate and contribution of return from the various asset classes in BUFHX during the quarter was as follows:

Unweighted ReturnContribution to Return
Straight Corporates2.3%1.4%
Bank Loans1.5%0.2%
Convertible Preferred10.9%0.2%
Common Stocks(5.0%)0.0%

The table above provides returns by asset class. Convertible preferreds were the best performing asset class and straight corporates were the largest contributor to the Fund’s quarterly returns. Specific securities that positively contributed the most to performance within this asset class during the quarter included the Medicines Company 2.500% and 2.750% convertible bonds as well CEB 5.625% straight corporate bonds which increased in price due to better underlying fundamentals. Within the straight corporate debt category, CEB, Valeant Pharma and KCG Holdings were the best performers. CEB increased in value due to a takeout, while Valeant and KCG improved due to better earnings. Bank loans that contributed the most to performance during the quarter include Valeant and Digital Globe. Securities that detracted most from performance during the quarter included Horizon Global 2.750% convertible bonds, Consolidated Communications 6.500% senior notes and Wildhorse Resources 6.875% senior notes. Horizon Global and Consolidated Communications decreased in value due to disappointing quarterly earnings and Wildhorse Re-sources was lower due to lower crude oil prices.


As noted above, high yield performance remained strong with yields and spreads compressing throughout the past year. High yield spreads are now approaching their lowest level in the past few years and below the 30 year historical average as an improving economy has boosted fundamentals and default rates remain muted. As a result, we believe high yield returns going forward will likely be lower than those in 2016 and may experience more volatility given current prices and spreads. The positives for high yield securities are the same as they were at the end of 2016: overall are the improving economy, a new President that is focused on fiscal stimulus and reduced regulations, and lower default rates. The potential risks to high yield assets are the prospects for interest rates to rise faster than expected, geopolitics, and protectionism.

The portfolio remains well diversified with over 122 individual positions. We continue to manage the fund in a conservative manner and are focused on higher quality credits with shorter durations. Additionally, we also believe that bank loans offer a compelling opportunity as they are senior in the capital structure and increase in value as rates increase. Lastly, we remain opportunistic as it relates to convertible bonds.

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. Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Diversification does not assure a profit, nor does it protect against a loss in a declining market.

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.

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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 received 4 stars among 590 for the three-year, 3 stars among 474 for the five-year, and 3 stars among 317 High Yield Bond funds for the ten-year period ending 6/30/17.

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.

©2017 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.

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.