Fundamental Growth Investors
Portfolio Managers Bill Kornitzer and Nicole Kornitzer discuss how they attempt to find the most appropriate stocks to invest in from the thousands of companies worldwide.
“Unlike many of our peers, we aren’t trying to pick stocks that are going to be the best performers in the next week or the next quarter, but trying to strive for the best long term performance on a risk adjusted basis over time.”
~ Bill Kornitzer, CFA
Overall Morningstar Rating™ of BUFIX based on risk-adjusted returns among 419 Foreign Large Growth funds as of 7/31/20.
Trump Tariffs & the Current State of International Markets
In a recent Q&A, BUFIX portfolio managers provided insightful answers to questions posed regarding the current state of the international markets.
- What’s your take on the current status of the international market in relation to the U.S. cycle?
- What is your opinion on President Trump’s recent announcement regarding tariffs?
Fund Objective & Investment Strategy
The investment objective of the Buffalo International Fund is long-term growth of capital.
The International Fund invests primarily in equity securities of established companies that are economically tied to various countries throughout the world (excluding the U.S.).
For purposes of the International Fund’s investments, “foreign securities” means those securities issued by companies:
- Organized under the laws of, or with a principal office in, a country other than the U.S. and issue securities for which the principal trading market is in a country other than the U.S.; or
- That derive at least 50% of their revenues or profits from goods produced or sold, investments made, or services provided in a country other than the U.S., or have at least 50% of their assets in a country other than the U.S.
- Under normal circumstances, the International Fund does not expect its investments in emerging markets to exceed 35% of its net assets.
In selecting securities for the International Fund, the Fund managers use a bottom-up approach in choosing investments, seeking companies expected to experience growth based on the identification of long-term, measurable industry, technological, global or other trends.
Companies are screened using in-depth, in-house research to identify those which the Fund managers believe have favorable attributes, including:
- attractive valuation
- strong management
- conservative debt
- free cash flow
- scalable business models
- competitive advantages
In making portfolio selections the Fund managers will also consider the economic, political and market conditions of the various countries in which the Fund may invest.
When it comes to investing internationally, we believe our approach to stock selection is distinct. We are focused on finding good companies and aren’t constrained by benchmark alignment to countries or industries.
Our approach is based on finding companies with sound business models, exposure to long-term secular growth trends, and attractive risk/return growth and valuation characteristics, which we can own for the long-term.
Nicole Kornitzer, Portfolio Manager
|As of 7/31/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||16.45||1.42||11.30||7.19||8.31||8.16||5.00|
|BUFFALO INTERNATIONAL FUND - Institutional||16.51||1.54||11.51||7.36||8.48||8.33||5.16|
|Morningstar Global Markets ex-US Index||12.93||-7.27||0.80||1.43||3.75||5.02||1.72|
|Lipper International Fund Index||14.11||-5.70||3.38||1.78||3.31||5.50||1.78|
|Morningstar Foreign Large Growth Category||17.98||3.88||13.50||6.78||6.53||7.47||2.95|
|As of 6/30/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||18.82||-4.68||2.68||6.21||7.19||8.14||4.52|
|BUFFALO INTERNATIONAL FUND - Institutional||18.89||-4.62||2.82||6.37||7.34||8.30||4.68|
|Morningstar Global Markets ex-US Index||16.96||-11.12||-4.51||1.18||2.79||5.47||1.40|
|Lipper International Fund Index||18.82||-8.93||-1.87||1.66||2.72||6.05||1.51|
|Morningstar Foreign Large Growth Category||21.42||-1.60||6.44||6.05||5.58||7.79||2.54|
3 Year Risk Metrics
|BUFIX vs Morningstar Global Markets ex-US Index (As of 6/30/20)|
Hypothetical Growth of $10,000
|(As of 6/30/20)|| |
|# of Holdings||89|
|Median Market Cap||$30.07 B|
|Weighted Average Market Cap||$69.77 B|
|3-Yr Annualized Turnover Ratio||14.21%|
Top 10 Holdings
|Name of Holding||Ticker||Country||Sector||% of Net|
|Sartorius Stedim Biotech||DIM||France||Health Care||3.00%|
|Lonza Group||LONN||Switzerland||Health Care||2.34%|
|Taiwan Semiconductor||TSM||Taiwan, Province of China||Technology||2.24%|
|Eurofins Scientific||ERF||France||Health Care||1.88%|
|TOP 10 HOLDINGS TOTAL||21.76%|
Top 10 Countries
|COUNTRY||% of Portfolio|
|Taiwan, Province of China||2.25%|
|TOP 10 TOTAL||76.45%|
CAPITAL MARKET OVERVIEW
(As of 6/30/20) — Following the calamitous 1st quarter, global equities rebounded sharply in the 2nd quarter, as central banks and governments around the world announced measures to support economies in the midst of the COVID-19 lockdowns. As countries reopened, optimism for the possibility of a V-shaped recovery drove markets higher. All industry sectors and all geographies rose strongly during the period. While the rise was not quite as dramatic as in the U.S. markets, the MSCI ACWI ex-US Index rose a strong 16.12%, while the MSCI EAFE Index rose 14.88%. Emerging markets, which had suffered the worst decline in the 1st quarter, rebounded 18.08% as measured by the MSCI Emerging Markets Index.
(As of 6/30/20) — The Buffalo International Fund (BUFIX) produced a return of 18.82% for the quarter, outperforming the Morningstar Global Markets ex-US Index’s return of 16.96%. Stock selection was the main driver of performance during the period. The sector allocation impact was fairly neutral during the period, while the Fund’s allocation to cash detracted from relative results during the markets’ strong advance.
Top contributors in the period included Ashtead Group, ASML Holding NV, and Lonza Group AG, which all saw their stocks recover from steep drops in the prior quarter.
Ashtead Group, which provides rental equipment primarily for construction-related activities, has been propelled even higher by expectations for a U.S. infrastructure bill. Whatever the government decides, we feel Ashtead will come out of any economic recession better positioned than ever, and companies may increasingly be likely to rent equipment rather than purchase their own, as they try to maintain larger cash balances.
ASML, one of the world’s largest producers of semiconductor manufacturing equipment, rebounded and climbed even higher, as management expressed confidence in its ability to recoup lost sales and grow for the full year in spite of the pandemic. ASML is the sole provider of certain equipment for semiconductor manufacturing and could be a key beneficiary of some longer-term trends such as spending on elevated logic and memory equipment for artificial intelligence (AI).
Finally, Lonza Group, which produces media and active ingredients that help pharmaceutical companies produce biologic drugs and drug candidates, has had minimal disruption to its business throughout the pandemic. Growth, strategic investments, and portfolio adjustments were all on track, while announced manufacturing agreements with vaccine developers may have given the stock a bit of additional momentum.
Partially offsetting the contributions from above included lagging results from Grifols S.A., Jardine Matheson Holdings Limited, and BAE Systems PLC during the period.
Grifols, a pharma company focused on the plasma derivatives business, had a weak stock performance due to concerns around the collection of plasma from human donors in the face of the circulating virus, as well as recent positive data from a potential future competitor in one business area. While we think the pandemic presents some challenges and will add to costs, the long-term growth of the business continues to be attractive in our view, for a company operating in an industry with high barriers to entry.
Jardine Matheson, a conglomerate of consumer-driven businesses in the Asia-Pacific region, reported results that were pressured by pandemic-related declines in consumption while BAE Systems also reported greater impacts from COVID-19 disruptions than had been expected.
(As of 6/30/20) — As we have seen over the past month, the prospects of a quick and complete bounce back from the economic pain induced by the lockdowns is proving too optimistic. The pandemic continues to sweep its way across the world, flaring up here and there, and frankly, it is unknown what further measures will be taken to control its spread or how consumers will react to its presence. We expect to see continued market volatility over the next few quarters, as we continue to be in a period of economic uncertainty, and most companies have limited visibility into the near-term future of their businesses.
While the economic impact of the past lockdowns is becoming clearer, we do not yet know exactly in what enduring ways this pandemic might weigh on global economies, nor how behaviors might change for the longer term. Social unrest has risen over the past quarter, and the continued pandemic and ensuing economic stress could cause further unrest. Given the damage to trade that the pandemic has caused, the rising trade tensions between the U.S. and China will also be a factor to monitor. Finally, medical advances or failures with respect to a treatment or a vaccine for coronavirus will have an impact on the outlook for markets. All of these factors create uncertainty and may contribute to market choppiness.
As always, we believe volatility offers opportunity for those investors who take a longer-term view. We will seek out those companies who can survive during this exceptional time and grow throughout the economic cycle beyond. As usual, our focus remains steadfast on investing in attractively-priced, financially-stable, well-managed companies with innovative strategies fueled by secular growth attributes. We believe this discipline should lead to superior risk-adjusted returns over the long term.
International Fund News
BUFIX and BUFHX were named to the Investor’s Business Daily Best Mutual Funds 2020 list in the International Stock Fund and U.S. Taxable Bond Funds categories, respectively.
Bill Kornitzer, Buffalo International Fund co-portfolio manager, recently appeared on the Money Life with Chuck Jaffe podcast, discussing investing internationally and provided his viewpoints on the current U.S. trade wars, Brexit, and global markets.
List of the “Top 20 Female Portfolio Managers in the U.S.” according to Citywire includes Buffalo Fund manager Nicole Kornitzer, one of only 7 women to be included in consecutive years.
- Investor’s Business Daily “Best Mutual Funds List” – March 23, 2020
- Citywire “Top 20 Female Portfolio Managers in the U.S.” – December 20, 2019
- Kiplinger Top-Performing Mutual Fund (5 Years) – November 15, 2019
- US News & World Reports – Best Mutual Funds – August 15, 2019
- Zacks “4 Non-U.S. Mutual Funds to Buy Now” – July 3, 2019
- Zacks “3 Non-U.S. Mutual Funds Worth Taking a Look” – May 3, 2019
- Morningstar 5-star Overall Rating – March 31, 2019 – out of 373 Foreign Large Growth funds*
- Morningstar 5-star Overall Rating – December 31, 2018 – out of 364 Foreign Large Growth funds*
- Zacks “Consider These Non-U.S. Mutual Funds for Excellent Returns” – October 25, 2018
- Morningstar 5-star Overall Rating – September 30, 2018 – out of 347 Foreign Large Growth funds*
- Citywire “Winning Women – Top 20 Female Portfolio Managers in the U.S.” – August 31, 2018
- Citywire “International Stars to Watch” – August 10, 2018
- Morningstar 5-star Overall Rating – September 30, 2017 – out of 325 Foreign Large Growth funds*
- Zacks “Four #1 Non-U.S. Mutual Funds” – September 22, 2017
- Citywire “Alpha Female 2017 – The Top Female Fund Managers in 7 Major Markets” – August 8, 2017
- Zacks “3 Strong Buy Non-U.S. Mutual Funds” – June 7, 2017
- Citywire Top 20 Female Portfolio Managers in the U.S. – December 7, 2016
*Overall Morningstar Rating derived from a weighted average of the fund’s 3-, 5-, and 10-year risk adjusted return.
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.
We construct our portfolios based on our own proprietary investment strategy.
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.
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.