Quick Facts
Investor Institutional
Ticker: BUFHX BUIHX
Daily Pricing:  
As of 2/7/2023  
NAV: $10.35 $10.34
$ Change: $-0.01 $-0.01
% Change:
-0.10% -0.10%
YTD:
2.81% 2.82%
Inception Date: 5/19/1995 7/1/2019
Expense Ratio: 1.02% 0.87%
Total Net Assets: $288.36 Million  (12/31/22)
Morningstar Category: High Yield Bond
Benchmark Index: ICE BofA U.S. High Yield
Dividend Distribution: Monthly
Related Material:
   Fund Fact Sheet Q4 2022
   PM Commentary Q4 2022
   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 625 High Yield Bond funds as of 12/31/22.

Performance (%)

As of 1/31/233 MOYTD1 YR3 YR5 YR10 YR15 YR20 YRSince Inception
BUFFALO HIGH YIELD FUND - Investor4.222.61-2.013.724.084.505.796.196.62
BUFFALO HIGH YIELD FUND - Institutional4.162.62-1.873.884.224.655.946.346.77
  ICE BofA U.S. High Yield Index5.083.91-5.081.072.794.216.307.176.52
  Lipper High Yield Bond Funds Index5.123.80-4.621.122.593.835.366.295.43
  Morningstar High Yield Bond Category5.113.58-4.810.932.333.435.186.115.35
As of 12/31/223 MOYTD1 YR3 YR5 YR10 YR15 YR20 YRSince Inception
BUFFALO HIGH YIELD FUND - Investor3.98-5.53-5.532.893.644.385.516.086.54
BUFFALO HIGH YIELD FUND - Institutional4.02-5.39-5.393.053.784.535.666.236.70
  ICE BofA U.S. High Yield Index4.01-11.17-11.17-0.212.133.955.937.126.39
  Lipper High Yield Bond Funds Index3.91-10.28-10.28-0.151.993.594.956.215.31
  Morningstar High Yield Bond Category3.91-10.09-10.09-0.211.743.204.806.025.23

2013201420152016201720182019202020212022
BUFFALO HIGH YIELD FUND - Investor9.401.961.806.655.98-2.2612.329.275.53-5.53
BUFFALO HIGH YIELD FUND - Institutional9.562.111.956.816.14-2.1212.409.435.69-5.39
  ICE BofAML U.S. High Yield Index7.422.50-4.6417.497.48-2.2614.416.175.36-11.17
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 BofA U.S. High Yield Index (As of 12/31/22)
Upside Capture89.69
Downside Capture71.87
Alpha3.04
Beta0.83
Sharpe Ratio0.23
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
Record
Date
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
1/17/231/18/23$10.31 (Inv)

$10.30 (Inst)
-

-
-

-
$0.01288989

$0.0141153
$0.01288989

$0.0141153
2023 Distribution Dates:

Net Investment Income, if any – Record Date (2/17/23); Payment Date (2/21/23)

Net Investment Income, if any – Record Date (3/17/23); Payment Date (3/20/23)

Net Investment Income, if any – Record Date (4/17/23); Payment Date (4/18/23)

Net Investment Income, if any – Record Date (5/17/23); Payment Date (5/18/23)

Net Investment Income, if any – Record Date (6/20/23); Payment Date (6/21/23)

Net Investment Income, if any – Record Date (7/17/23); Payment Date (7/18/23)

Net Investment Income, if any – Record Date (8/17/23); Payment Date (8/18/23)

Net Investment Income, if any – Record Date (9/18/23); Payment Date (9/19/23)

Net Investment Income, if any – Record Date (10/17/23); Payment Date (10/18/23)

Net Investment Income, if any – Record Date (11/17/23); Payment Date (11/20/23)

Capital Gains, if any – Record Date (12/4/23); Payment Date (12/5/23)

Net Investment Income, if any – Record Date (12/18/23); Payment Date (12/19/23)
For historical distributions, click here.

Portfolio

Portfolio Characteristics
(As of 12/31/22) 
 
# of Holdings128
3-Yr Annualized Turnover Ratio43.72%
Average Duration3.21 years
Average Maturity7.30 years
30-day SEC Yield7.59%
Top 10 Holdings
Name of HoldingMaturity Date% of Net
Assets
MPLX3 Month LIBOR +4.652%, 8/15/233.20%
Northern Oil & Gas8.125%, 3/1/283.14%
DirecTV Financing1 Month LIBOR + 5.000%, 8/2/273.06%
Talos Production12.000%, 1/15/262.30%
Consol Energy11.000%, 11/15/252.27%
Penn Virginia Escrow9.250%, 8/15/262.25%
Portillo's1st Lien Term Loan, 9/6/242.20%
CoreCivic8.250%, 4/15/262.20%
Matador Resources5.875%, 9/15/261.95%
Maxar Technologies1 Month SOFR + 4.250%1.73%
TOP 10 HOLDINGS TOTAL24.30%
As of 9/30/22. 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 12/31/22. Allocation percentages may not equal 100% due to rounding.
Sector Weighting
As of 12/31/22. 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 Years0.04
5-7 Years7.84
3-5 Years29.20
1-3 Years33.10
0-1 Years9.81
*Excludes Bank Loans and Converts.
Credit Quality
Quality Breakout (%)
Baa2.00
Ba27.55
B61.09
Caa4.71
Unassigned4.65
All ratings are as of 12/31/22. 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

26 Years of Experience

 View full bio

Jeff Sitzmann, CFA
Portfolio Manager

36 Years of Experience

 View full bio

Jeff Deardorff, CFA
Portfolio Manager

26 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 12/31/22) — The U.S. high yield sector recorded its first positive quarter after three consecutive losing quarters as investors became more optimistic that the previous aggressive Federal Reserve (the “Fed”) actions were taming inflation more quickly than expected. Softer than expected economic data in October and November gave investors hope that the Fed could slow its pace of tightening. In addition, the high yield sector saw strong retail inflows, but very little new issuance, which drove demand for outstanding issues and lifted prices. December reversed course, albeit much more muted, driven by outflows and commentary from Fed officials that was more hawkish than many expected. The JP Morgan Domestic High Yield Index ended the quarter at a yield to worst of 9.23%, down 63 basis points (bps) from the beginning of the quarter, but well above the record low of 4.22% in July 2021. The 10-year Treasury yield rose 6 bps to 3.88% and produced a positive return of 0.56% during the quarter while the S&P 500 Index posted a gain of 7.56%.

High yield funds snapped a streak of quarterly cash outflows that began in the 1st quarter of 2021, posting $7.3 billion of inflows in the 4th quarter. For calendar year 2022, high yield fund outflows were a record -$47 billion, compared to -$13.2 billion of outflows in 2021. Not surprisingly, high yield new issuance remained muted during the quarter with only $16.6 billion, which was the lightest volume since the March 2009 quarter and compares to the quarterly average of $117 billion over the last two years. According to JP Morgan, the Energy sector saw the largest issuance accounting for 19%, followed by Gaming/Lodging/Leisure (14.7%), and Transportation (12.7%).

As mentioned previously, the 10-year Treasury bond yield only rose 6bps from 3.82% to 3.88%, compounding the 80bps increase in the 3rd quarter. According to data from JP Morgan, the -0.94% loss for the CCC credit tier was the only negative return amongst the credit quality silos and underperformed the rest of the credit spectrum, with split BB-rated bonds performing the best (+4.81%) for the quarter. Returns by industrial sector in the U.S. high yield universe were nearly all positive during the 4th quarter. According to data from JP Morgan, the Metals/Mining sector was the best performer with a positive 7.94% return, and Broadcasting was the only sector to deliver negative returns of -0.23%.

According to data from JP Morgan, the U.S. high yield market’s spread to worst for the period was 511bps, 63bps tighter than the 3rd quarter and 55bps tighter than the 20-year historical average of 566 bps. The yield to worst for the high yield market at quarter end was 9.23%, above the 20-year average of 7.84%, and well above the 4.71% yield at the end of the December 2021 quarter.

PERFORMANCE COMMENTARY

(As of 12/31/22) — The Buffalo High Yield Fund (BUFHX) produced a return of 3.98% for the quarter, a result that was almost in-line with the ICE BofA US High Yield Index which gained 4.01% and slightly ahead of the Lipper High Yield Bond Funds Index which gained 3.91%.

Fund Composition by Asset Class
12/31/213/31/226/30/229/30/2212/31/22
Straight Corporates67.8%68.3%69.4%69.6%68.4%
Convertibles7.1%6.3%4.6%4.3%3.4%
Bank Loans16.7%18.5%18.9%19.1%19.1%
Preferred Stock2.6%2.7%2.9%2.5%2.2%
Convertible Preferred0.0%0.0%0.0%0.0%0.0%
Common Stocks1.3%0.0%0.0%0.0%0.0%
Cash4.5%4.1%4.1%4.6%6.9%

Approximate Rate and Contribution of Return from the Fund’s Various Asset Classes in 4Q22
Contribution to Return
Straight Corporates3.20%
Convertibles0.18%
Bank Loans0.73%
Preferred Stocks0.06%
Convertible PreferredN/A
Common StocksN/A
Total3.98%

TOP CONTRIBUTORS

During the quarter, the Fund’s three top contributors were the DirecTV term loan, the Ranger Oil 9.25% ’26 corporate bonds, and the Tutor Perini 6.875% ’25 corporate bonds. As with most leveraged loans, the DirecTV term loan held up well during the quarter due to its higher quality and higher floating rate coupon. Ranger Oil bonds performed well due to its reported strong free cash flows driven by higher oil prices. Tutor Perini, which is a major commercial construction company, benefited from strong cash collections on previously disputed contracts as well as announcing several new major contracts during the quarter.

TOP DETRACTORS

The Mastec 6.625% ’29 corporate bonds, Lions Gate 5.50% ’29 corporate bonds, and the Stride Inc. 1.125% ’27 convertible bonds were the worst performers during the quarter. Mastec declined in early October after completing the acquisition of Infrastructure & Energy Alternatives. Lions Gate reported disappointing earnings during the quarter, and questions around the spin-off of Starz network weighed on the bonds. Stride convertible notes declined in conjunction with the underlying common stock after reporting weaker than expected results in late October.

OUTLOOK
(As of 12/31/22) — We are focused first and foremost on the Federal Reserve’s balancing act between taming inflation while avoiding a recession, economic weakness globally, continued supply chain disruptions, and the geopolitical uncertainty caused by the ongoing conflict in Ukraine. We are managing the Fund cautiously yet actively, focusing on higher-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 more defensive position as they provide senior positioning in the capital structure and less interest rate sensitivity due to their floating rate structures. Finally, while we continue to look for opportunities in convertible bonds and preferred stocks, the increased level of bond yields for traditional bonds/loans in conjunction with the increased volatility of the underlying equities makes these types of securities less appealing to us at this time. We ended the quarter with 128 positions, down from the previous quarter’s total of 131.
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 5 stars among 625 for the 3-year, 5 stars among 579 for the 5-year, and 5 stars among 414 High Yield Bond funds for the 10-year period ending 12/31/22.

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. ©2022 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.