Quick Facts
InvestorInstitutional
Ticker:BUFHXBUIHX
Inception Date:5/19/19957/1/2019
Expense Ratio:1.02%0.87%
Total Net Assets:$201.38 Million  (9/30/19)
Category:High Yield Bond
Benchmark:ICE BofAML U.S. High Yield
Dividend Distribution:Monthly
Related Material:
   Fund Fact Sheet Q3 2019
   PM Commentary Q3 2019
   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 615 High Yield Bond funds as of 11/30/19.

Performance (%)

As of 11/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
BUFFALO HIGH YIELD FUND - Investor2.0010.808.475.034.346.185.706.96
BUFFALO HIGH YIELD FUND - Institutional2.0410.858.535.154.486.335.857.11
  ICE BofAML U.S. High Yield Index0.8212.079.616.285.387.617.077.16
  Lipper High Yield Bond Funds Index0.9811.839.195.914.606.995.985.92
  Morningstar High Yield Bond Category0.9410.648.415.304.176.525.895.89
As of 9/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
BUFFALO HIGH YIELD FUND - Investor1.249.164.844.404.296.185.786.94
BUFFALO HIGH YIELD FUND - Institutional1.279.284.994.554.456.345.947.10
  ICE BofAML U.S. High Yield Index1.2211.506.306.075.367.857.257.19
  Lipper High Yield Bond Funds Index1.0811.205.705.744.597.236.165.94
  Morningstar High Yield Bond Category1.079.985.275.104.096.756.065.91
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 9/30/19)
Upside Capture67.86
Downside Capture62.64
Alpha0.27
Beta0.68
Sharpe Ratio0.94
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
2019 Distribution Dates:

Record Date: December 17 | Payable Date: December 18


Record
Date
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
11/18/1911/19/19$11.03 (Inv)

$11.02 (Inst)
$0.03752353

$0.03899948
-

-
-

-
$0.03752353

$0.03899948
10/17/1910/18/19$11.01 (Inv)

$11.00 (Inst)
$0.03708550

$0.03846689
-

-
-

-
$0.03708550

$0.03846689
9/17/199/18/19$11.03 (Inv)

$11.04 (Inst)
$0.03462122

$0.03593629
-

-
-

-
$0.03462122

$0.03593629
8/19/198/20/19$10.94 (Inv)

$10.93 (Inst)
$0.04128776

$0.04288482
-

-
-

-
$0.04128776

$0.04288482
7/17/197/18/19$11.00 (Inv)

$10.99 (Inst)
$0.03927396

$0.04019933
-

-
-

-
$0.03927396

$0.04019933
6/17/196/18/19$10.96$0.03958964--$0.03958964
5/17/195/20/19$10.94$0.03906566--$0.03906566
4/17/194/18/19$10.92$0.04307389--$0.04307389
3/18/193/19/19$10.82$0.02822349--$0.02822349
2/19/192/20/19$10.75$0.04499921--$0.04499921
1/17/191/18/19$10.64$0.04556244--$0.04556244

Portfolio

Portfolio Characteristics
(As of 9/30/19) 
 
# of Holdings131
3-Yr Annualized Turnover Ratio32.21%
Average Duration2.13 years
Average Maturity5.25 years
30-day SEC Yield2.99%
Top 10 Holdings
Name of Holding% of Net
Assets
MacDonald Dettwiler (Term Loan B, 7/5/24)2.16%
Consolidated Communications (6.500%, 10/1/22)2.08%
Quad Graphics (7.000%, 5/1/22)2.04%
Triumph Group (4.875%, 4/1/21)1.99%
Phillips Van Heusen (7.750%, 11/15/23)1.78%
MPLX (6.875%, 8/15/23)1.74%
Brunswick (7.375%, 9/1/23)1.70%
Nuance Communications (1.500% , 11/1/35)1.65%
U.S. Silica (Term Loan A , 5/1/25)1.63%
Performance Food Group Escrow Corp (5.500% , 10/15/27)1.58%
TOP 10 HOLDINGS TOTAL18.35%
As of 9/30/19. 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 9/30/19. Allocation percentages may not equal 100% due to rounding.
Sector Weighting
As of 9/30/19. 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.
Loan Duration
Duration Breakout (%)*
10+ Years0.00
7-10 Years0.00
5-7 Years3.97
3-5 Years24.65
1-3 Years34.15
0-1 Years20.79
*Excludes Bank Loans and Converts.
Loan Quality
Quality Breakout (%)
A & Above0.00
BBB6.44
BB31.77
B29.42
CCC5.49
Non Rated26.88
All ratings are as of 9/30/19. 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.

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 9/30/19) — After producing positive returns in the 2nd quarter of 2019, the U.S. high yield sector continued to push higher during the 3rd quarter, albeit to a lesser extent. The market’s performance was impacted by: (i) continued modest economic growth of U.S. gross domestic product (GDP); (ii) a widely anticipated 25 basis point (bps) cut from the Federal Reserve (the “Fed”) with a signaled “wait and see” approach going forward; (iii) volatile movements in crude oil prices that affected the energy space; and (iv) the equity market indexes continuing their climb higher. The Fed’s cut, and the resulting decline in the level of short-term interest rates (3 Month LIBOR down 23bps to 2.09%), encouraged investors to buy risky assets. The 10-year Treasury bond returned 3.37% during the quarter, outpacing the S&P 500 Index return of 1.70%.

Despite increased market volatility, high yield mutual funds experienced positive cash inflows during the quarter of about $3.8 billion. This follows a flat 2nd quarter and a 1st quarter inflow of $12.6 billion, which was the largest quarterly inflow in the last five years. The $67.7 billion in high yield new issuance during the quarter was down sequentially ($74.7 billion in the 2nd quarter) but higher year-over-year ($42 billion 3rd quarter 2018).

During the quarter, the 10-year Treasury Bond yield dropped by 33 bps from 2.00% to 1.67%. The U.S. high yield universe as a whole followed suit with positive returns and lower yields despite the energy sector continuing to be punished by plunging crude oil prices. According to data from JP Morgan, the higher quality end of the credit spectrum, single B-rated issues and above, continued its year-to-date trend of outperforming lower rated issues. The split BBB segment produced the highest return at 2.14% while the split B segment was the worst performing group at -4.36%.

According to data from JP Morgan, the U.S. high yield market’s spread to worst for the period was 4.75%, 110 bps wider than the preceding September quarter but still 135 basis points below its 20-year historical average of 610 basis points. The yield to worst for the high yield market at quarter-end was 6.39%, below the 8.83% 20-year average, and below the yield of 6.53% at the end of the last September 2018 quarter.

PERFORMANCE COMMENTARY

(As of 9/30/19) — The Buffalo High Yield Fund increased 1.24% in the 3rd quarter, a result in-line with the ICE BofAML U.S. High Yield Index return of 1.22%. The Fund also outperformed the Lipper High Yield Bond Funds Index and the Morningstar High Yield Bond Category for the quarter.

Fund Composition by Asset Class
9/30/1812/31/183/31/196/30/199/30/19
Straight Corporates67.2%68.1%65.4%64.7%65.0%
Convertibles8.3%7.6%10.1%12.1%13.4%
Bank Loans19.7%20.2%17.2%15.2%16.0%
Preferred Stock0.0%0.0%0.0%0.0%0.0%
Convertible Preferred0.5%0.6%0.6%0.0%0.0%
Common Stocks1.1%0.8%0.7%1.4%1.2%
Cash3.1%2.7%6.0%6.5%4.4%
Total100.0%100.0%100.0%100.0%100.0%
Approximate Rate and Contribution of Return from the Fund’s Various Asset Classes in 3Q19
Unweighted ReturnContribution to Return
Straight Corporates1.9%1.22%
Convertibles1.2%0.18%
Bank Loans0.7%0.08%
Preferred Stocks0.0%0.00%
Convertible Preferred0.0%0.00%
Common Stocks-4.7%-0.06%
Total1.23%

TOP CONTRIBUTORS

Specific securities that contributed most positively to performance include Medicines Company 2.750% convertible bonds, Performance Food Group 5.500% corporate bonds, and Brunswick 7.375% corporate bonds. Medicines Company convertible bonds rose due to favorable study results for its new cholesterol lowering medication. The Fund participated in the new issuance from Performance Food Group in September that quickly popped several basis points after being released. Brunswick 7.375% corporate bonds are investment grade and continued to rally as treasury yield spreads tightened.

TOP DETRACTORS

Specific securities that detracted most from performance include LSC Communications 8.75% corporate bonds, 8×8 Inc. 0.500% convertible notes, and Air Transport Services 1.125% convertible notes. The LSC bonds declined after the Department of Justice announced that it was blocking the acquisition of LSC by Quad Graphics. 8×8’s convertible notes declined as the underlying common stock was negatively impacted by a sell-side analyst downgrade in September. Air Transport Services converts followed its common stock lower in August after a peer reported worse-than-expected performance and uncertainty from the China trade tensions that weighed on the sector.

OUTLOOK

(As of 9/30/19) — A growing economy with modest inflation has created a favorable environment for risky assets. However, market participants are becoming increasingly concerned about the trade war with China, political uncertainty in Washington, and escalating tension in the Middle East. The U.S. high yield default rate decreased to 2.52% in September, down slightly from 2.55% in June 2019, and still below the 3.46% long-term average. New issuance activity in the quarter declined to $67.7 billion, below the $75.2 billion in the 2nd quarter. We continue to be concerned about the late stages of this economic cycle, geopolitical tensions – in particular the trade tensions with China, and increasing protectionism efforts from the White House.

Given the late stages of the economic cycle, we find ourselves confronted with still relatively low spread and yield levels. We are managing the Fund cautiously yet actively. We ended the quarter with 131 positions compared to the previous quarter’s level of 126 positions (excluding cash).

We are managing the portfolio to focus on high-quality issuers with defensive business models and manageable credit metrics. 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 compelling opportunity as they offer senior positioning in the capital structure and floating interest rates. Finally, we continue to look for opportunities in convertible bonds and preferred securities.

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
  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 3 stars among 615 for the 3-year, 3 stars among 539 for the 5-year, and 3 stars among 340 High Yield Bond funds for the 10-year period ending 11/30/19.

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. ©2019 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.