High Yield Fund
Quick Facts
| Investor | Institutional | |
| Ticker: | BUFHX | BUIHX |
| Inception Date: | 5/19/1995 | 7/1/2019 |
| Expense Ratio: | 1.03% | 0.87% |
| Total Net Assets: | $301.47 Million (12/31/21) | |
| Morningstar Category: | High Yield Bond | |
| Benchmark Index: | ICE BofAML U.S. High Yield | |
| Dividend Distribution: | Monthly | |
| Related Material: Fund Fact Sheet Q4 2021 PM Commentary Q4 2021 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 634 High Yield Bond funds as of 12/31/21.
Performance (%)
| As of 12/31/21 | 3 MO | YTD | 1 YR | 3 YR | 5 YR | 10 YR | 15 YR | 20 YR | Since Inception |
|---|---|---|---|---|---|---|---|---|---|
| BUFFALO HIGH YIELD FUND - Investor | 0.44 | 5.53 | 5.53 | 9.01 | 6.05 | 6.01 | 6.17 | 6.59 | 7.02 |
| BUFFALO HIGH YIELD FUND - Institutional | 0.48 | 5.69 | 5.69 | 9.14 | 6.20 | 6.16 | 6.32 | 6.74 | 7.18 |
| ICE BofAML U.S. High Yield Index | 0.66 | 5.36 | 5.36 | 8.57 | 6.10 | 6.72 | 6.93 | 7.65 | 7.12 |
| Lipper High Yield Bond Funds Index | 0.63 | 5.85 | 5.85 | 8.23 | 5.76 | 6.24 | 5.86 | 6.66 | 5.94 |
| Morningstar High Yield Bond Category | 0.49 | 4.77 | 4.77 | 7.51 | 5.19 | 5.74 | 5.75 | 6.58 | 5.86 |
| As of 12/31/21 | 3 MO | YTD | 1 YR | 3 YR | 5 YR | 10 YR | 15 YR | 20 YR | Since Inception |
|---|---|---|---|---|---|---|---|---|---|
| BUFFALO HIGH YIELD FUND - Investor | 0.44 | 5.53 | 5.53 | 9.01 | 6.05 | 6.01 | 6.17 | 6.59 | 7.02 |
| BUFFALO HIGH YIELD FUND - Institutional | 0.48 | 5.69 | 5.69 | 9.14 | 6.20 | 6.16 | 6.32 | 6.74 | 7.18 |
| ICE BofAML U.S. High Yield Index | 0.66 | 5.36 | 5.36 | 8.57 | 6.10 | 6.72 | 6.93 | 7.65 | 7.12 |
| Lipper High Yield Bond Funds Index | 0.63 | 5.85 | 5.85 | 8.23 | 5.76 | 6.24 | 5.86 | 6.66 | 5.94 |
| Morningstar High Yield Bond Category | 0.49 | 4.77 | 4.77 | 7.51 | 5.19 | 5.74 | 5.75 | 6.58 | 5.86 |
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|
| BUFFALO HIGH YIELD FUND - Investor | 10.35 | 9.40 | 1.96 | 1.80 | 6.65 | 5.98 | -2.26 | 12.32 | 9.27 | 5.53 |
| BUFFALO HIGH YIELD FUND - Institutional | 10.52 | 9.56 | 2.11 | 1.95 | 6.81 | 6.14 | -2.12 | 12.40 | 9.43 | 5.69 |
| ICE BofAML U.S. High Yield Index | 15.58 | 7.42 | 2.50 | -4.64 | 17.49 | 7.48 | -2.26 | 14.41 | 6.17 | 5.36 |
3 Year Risk Metrics
| BUFHX vs ICE BofAML U.S. High Yield Index (As of 12/31/21) | |
|---|---|
| Upside Capture | 96.52 |
| Downside Capture | 87.36 |
| Alpha | 1.06 |
| Beta | 0.92 |
| Sharpe Ratio | 0.93 |
Hypothetical Growth of $10,000
Distributions
| Record Date | Payable Date | Distribution NAV | Net Investment Income | Short-Term Capital Gains | Long-Term Capital Gains | Distribution Total |
|---|---|---|---|---|---|---|
| 1/18/22 | 1/19/22 | $11.49 (Inv) $11.48 (Inst) | $0.02618556 $0.02771153 | - - | - - | $0.02618556 $0.02771153 |
Net Investment Income, if any – Record Date (2/17/22); Payment Date (2/18/22)
Net Investment Income, if any – Record Date (3/17/22); Payment Date (3/18/22)
Net Investment Income, if any – Record Date (3/17/22); Payment Date (3/18/22)
Net Investment Income, if any – Record Date (4/18/22); Payment Date (4/19/22)
Net Investment Income, if any – Record Date (5/17/22); Payment Date (5/18/22)
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)
Portfolio
Portfolio Characteristics
| (As of 12/31/21) | |
|---|---|
| # of Holdings | 142 |
| 3-Yr Annualized Turnover Ratio | 48.24% |
| Average Duration | 2.79 years |
| Average Maturity | 7.63 years |
| 30-day SEC Yield | 3.90% |
Top 10 Holdings
| Name of Holding | Maturity Date | % of Net Assets |
|---|---|---|
| Nuance Communications | 1.500%, 11/1/35 | 2.51% |
| MPLX | 6.875%, 8/15/23 | 2.39% |
| Northern Oil & Gas | 8.125%, 3/1/28 | 2.36% |
| Consol Energy | 11.000%, 11/15/25 | 2.07% |
| DirecTV | 1 Month LIBOR + 5.000%, 8/2/27 | 2.01% |
| Matador Resources | 5.875%, 9/15/26 | 1.90% |
| Energy Transfer | 7.125%, perpetual preferred | 1.75% |
| Penn Virginia Escrow | 9.250%, 8/15/26 | 1.69% |
| PetIQ | 3 Month LIBOR +4.250%, 4/7/28 | 1.67% |
| Magnite | 6 Month LIBOR +5.000%, 4/3/28 | 1.51% |
| TOP 10 HOLDINGS TOTAL | 19.86% |
Asset Allocation
Sector Weighting
Duration
| Duration Breakout (%)* | |
|---|---|
| 10+ Years | 0.00 |
| 7-10 Years | 0.30 |
| 5-7 Years | 12.06 |
| 3-5 Years | 27.54 |
| 1-3 Years | 27.62 |
| 0-1 Years | 14.43 |
Credit Quality
| Quality Breakout (%) | |
|---|---|
| Baa | 2.07 |
| Ba | 12.57 |
| B | 47.39 |
| Caa | 8.87 |
| Unassigned | 29.10 |
Management
Commentary
CAPITAL MARKET OVERVIEW
(As of 9/30/21) — The U.S. high yield sector continued its positive return streak in the quarter, posting a sixth consecutive positive quarter, after suffering a significant correction in March 2020. Though positive, high yield returns were more muted this quarter, as investors weighed strong corporate earnings and economic data early in the first half of the quarter versus Federal Reserve tapering concerns, uncertainty regarding the spread of the Delta variant, and potential fallout from China’s Evergrande default. High yield bonds ended the quarter at a 4.51% yield to worst, after touching a record low of 4.22% in July. The 10-year Treasury Bond declined -0.28% during the quarter while the S&P 500 Index posted a return of 0.58%.
High yield funds saw a relatively benign cash inflow of $1.9 billion in the quarter, but it was the first quarterly inflow this year, following outflows of -$10.6 billion and -$3.3 billion in the March and June quarters respectively. Meanwhile, high yield new issuance produced the seventh highest quarterly volume on record with $108.5 billion, following the third highest volume of $142.5 billion issued in the preceding June 2021 quarter. According to JP Morgan, the middle and upper credit quality tiers (B
During the quarter, the 10-year Treasury Bond yield rose 6 basis points (bps) to 1.53% from 1.47% at the end of June, after dropping as low as 1.17% in early August. Every sector in the U.S. high yield universe and every credit rating silo produced positive returns during the 3rd quarter. According to data from JP Morgan, the lower quality end of the high yield credit spectrum outperformed the middle and upper tiers, with the split B and CCC segments performing the best at 1.17% and 1.03% respectively. The split BB and split BBB segments were the laggards, with both posting a 0.72% gain.
According to data from JP Morgan, the U.S. high yield market’s spread to worst for the period was 385 bps, 15 bps wider than the preceding June quarter and 204 basis points tighter than its 20-year historical average of 589 basis points. The yield to worst for the high yield market at quarter end was 4.51%, bouncing off of the all-time record low of 4.30% in the preceding June quarter, and still well below the 8.14% 20-year average.
PERFORMANCE COMMENTARY
| Fund Composition by Asset Class | |||||
|---|---|---|---|---|---|
| 9/30/20 | 12/31/20 | 3/31/21 | 6/30/21 | 9/30/21 | |
| Straight Corporates | 60.6% | 61.0% | 62.7% | 61.5% | 65.3% |
| Convertibles | 17.6% | 14.7% | 16.3% | 17.0% | 16.1% |
| Bank Loans | 16.3% | 17.2% | 11.2% | 13.7% | 13.5% |
| Preferred Stock | 1.5% | 1.2% | 2.2% | 2.3% | 2.2% |
| Convertible Preferred | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| Common Stocks | 0.4% | 0.1% | 0.0% | 0.0% | 0.0% |
| Cash | 3.6% | 5.8% | 7.6% | 5.5% | 2.9% |
| Approximate Rate and Contribution of Return from the Fund’s Various Asset Classes in 3Q21 | |
|---|---|
| Contribution to Return | |
| Straight Corporates | 0.96% |
| Convertibles | -0.19% |
| Bank Loans | 0.15% |
| Preferred Stocks | 0.04% |
| Convertible Preferred | 0.00% |
| Common Stocks | 0.00% |
| Total | 0.74% |
TOP CONTRIBUTORS
The three top contributors for the Fund during the quarter were Consol Energy 11% corporate bonds, Quad Graphics 7% corporate bonds, and Air Transportation Services 1.125% convertible bonds. Consol Energy operates coal mines in Pennsylvania and West Virginia, and its bonds gained during the quarter, as coal prices increased roughly 60% during the period. Quad Graphics performed well after posting better-than-expected earnings in the quarter and announcing the sale of a non-core business, which was used to pay down debt. Air Transportation Services convertible bonds rallied in conjunction with the underlying common stock, after the company posted better-than-expected earnings in early August.
TOP DETRACTORS
The Invacare 4.25% convertible bonds, Smile Direct Club 0.0% convertible bonds, and the Avaya 2.25% convertible bonds were the worst performers during the quarter. Invacare convertible bonds were negatively impacted by disappointing earnings announcement that were driven by global supply chain disruptions. Smile Direct Club convertible bonds declined after posting weaker-than-expected earnings. The position was liquidated during the quarter. Despite meeting analysts’ estimates, Avaya convertible bonds declined after the company provided guidance for the rest of 2021 that missed expectations.
OUTLOOK
(As of 9/30/21) — We are focused first and foremost on the ongoing recovery from the COVID-19 pandemic, the supply chain disruptions that have occurred as a result, and the Federal Reserve’s balancing act between growth and inflation. The potential for new regulatory changes to various industries from the Biden Administration is 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 will continue to deploy the 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 and less interest rate sensitivity due to their floating rate structures. Finally, we continue to look for opportunities in convertible bonds and preferred stocks.
Literature
| Buffalo High Yield Fund Documents | Last Updated |
|---|---|
| Fact Sheet | 9/30/21 |
| Quarterly Commentary | 9/30/21 |
| Full Fund Holdings | 9/30/21 |
| Summary Prospectus | 7/29/21 |
| Prospectus | 7/29/21 |
| Statement of Additional Information | 7/29/21 |
| Annual Report | 3/31/21 |
| Semi-Annual Report | 9/30/21 |
| Tax Guide - 2021 | 1/3/22 |
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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