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 405 Foreign Large Growth funds as of 2/29/20.
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 2/29/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||-4.55||-7.52||7.97||9.53||6.29||7.38||4.39|
|BUFFALO INTERNATIONAL FUND - Institutional||-4.48||-7.46||8.18||9.70||6.46||7.54||4.55|
|Morningstar Global Markets ex-US Index||-6.79||-10.63||-0.83||4.10||2.79||4.90||1.48|
|Lipper International Fund Index||-6.30||-9.67||1.49||4.70||2.57||5.21||1.49|
|Morningstar Foreign Large Growth Category||-4.14||-7.56||6.91||7.91||4.42||6.50||2.12|
|As of 12/31/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||9.67||28.02||28.02||14.70||9.17||7.77||5.12|
|BUFFALO INTERNATIONAL FUND - Institutional||9.68||28.20||28.20||14.87||9.33||7.93||5.28|
|Morningstar Global Markets ex-US Index||9.19||21.57||21.57||9.94||6.19||5.59||2.44|
|Lipper International Fund Index||9.14||23.41||23.41||9.97||5.94||5.82||2.35|
|Morningstar Foreign Large Growth Category||9.36||27.94||27.94||12.96||5.93||6.60||2.81|
3 Year Risk Metrics
|BUFIX vs Morningstar Global Markets ex-US Index (As of 12/31/19)|
Hypothetical Growth of $10,000
|(As of 12/31/19)|| |
|# of Holdings||90|
|Median Market Cap||$31.72 B|
|Weighted Average Market Cap||$63.88 B|
|3-Yr Annualized Turnover Ratio||9.63%|
Top 10 Holdings
|Name of Holding||Ticker||Country||Sector||% of Net|
|Taiwan Semiconductor||TSM||Taiwan, Province of China||Technology||2.28%|
|Sartorius Stedim Biotech||DIM||France||Health Care||2.24%|
|ICICI Bank||IBN||India||Financial Services||2.02%|
|Carl Zeiss Meditec||AFX||Germany||Health Care||1.93%|
|LVMH Moet Hennessy||MCP||France||Consumer Discretionary||1.90%|
|TOP 10 HOLDINGS TOTAL||20.73%|
Top 10 Countries
|COUNTRY||% of Portfolio|
|Taiwan, Province of China||2.09%|
|TOP 10 TOTAL||79.46%|
CAPITAL MARKET OVERVIEW
(As of 12/31/19) — The Buffalo International Fund produced a return of 9.67% for the quarter, beating the Morningstar Global Markets ex-U.S. Index’s return of 9.19%. The Fund’s outperformance versus the benchmark was primarily led by stock selection although our sector allocation weights also had a small positive impact on relative performance, despite a slight drag from uninvested cash. For the full year, the Fund produced a return of 28.02%, compared to the benchmark return of 21.57%. Outperformance for the year was also due to strong stock selection and industry positioning within the portfolio.
Among the Fund’s top contributors for the quarter and the year were stocks such as Taiwan Semiconductor, ICICI Bank, and Kering. ICICI Bank Limited, India’s #2 bank and its largest private bank, continued to benefit from improving retail loan growth and normalization in their ratio of loan charge-offs. Taiwan Semiconductor, the largest independent and most efficient semiconductor foundry, continued to benefit from Moore’s law (the perception that the number of transistors on a microchip doubles every two years, though the cost of computers is halved) and the proliferation of increasingly sophisticated electronic devices. Kering, a luxury goods conglomerate based in France, continued to benefit from strong demand from its stable of brands – most notably Gucci.
Major detractors for the quarter and year included Wirecard, Publicis, and AB InBev.
Regular readers of our commentaries will be familiar with Wirecard, as its recent history has been rife with volatility. The company has been included in both the top contributors and top detractors sections of our portfolio updates with some regularity. Unfortunately, this quarter was no different as short-sellers focused again on the stock. To be fair, there are different interpretations available for some of the questions raised, and, as a result, we have reduced our position size accordingly as we await the scope and outcome of an independent outside audit.
Publicis is a global advertising company that has been shifting their focus from traditional media outlets to the digital realm. This transformation has lessened our clarity on its long-term business model and we have therefore reduced our position size in this stock as well.
The share price of AB InBev, the global brewing company with well-known brands such as Budweiser, Stella, and Corona, has been held back after the successful offering of shares in their Asia Pacific business. The explosion in demand for ready-to-drink alcohol infused beverages as well as continued pressure from craft brewers has weighed on the stock.
(As of 12/31/19) — The shift in Central Bank direction for monetary policy and the lessening in trade tariff rhetoric satisfied market participants to close out the year. While global growth has not picked up materially, we expect the reduction in trade tension, the finalization of Brexit (Britain’s exit from the European Union), and a bottoming in the auto manufacturing cycle (as companies shift production to electric platforms) all to contribute to improved visibility and a more favorable environment for future corporate earnings. The Chinese economy also seems to have stabilized (using official data), though the shift to a more consumption driven economy will take time. While Europe’s economy hasn’t boomed, increasing stability and visibility should allow companies to once again focus on driving their operations toward the future.
Uncertainties still exist, including a contentious and unpredictable U.S. presidential election later this year, simmering trade tensions with China, and of course the seemingly always-volatile Middle East region. We also think it is worth monitoring the ongoing trade discussions between the European Union and the U.S., though we do not believe either party wishes dramatic change. We will continue to watch the potential ramifications on the industries and companies in which we invest to mitigate downside risks, while taking advantage of short-term volatility to invest in those companies that we believe have solid long-term prospects.
While not immune to a global economic slowdown, we believe our approach to investing positions us to identify companies than can grow throughout the economic cycle. Our view is that stocks outside the U.S. are less expensive relative to their domestic counterparts, providing a potential platform for relative outperformance.
Economic conditions may ebb and flow, but our focus remains steadfast on investing in attractively-priced, financially-strong, well-managed, non-U.S. companies with innovative strategies fueled by secular growth trends. We believe this approach to international investing has the potential to lead to superior risk-adjusted returns over the long term.
International Fund News
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.
Kiplinger recognized the Buffalo Small Cap and the Buffalo International funds as “Top-Performing Mutual Funds” in their recent fund analysis.
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.
Nicole Kornitzer, Buffalo International Fund co-portfolio manager, discusses her team’s approach to finding premier growth companies that are poised to take advantage of global trends.
- 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.