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?
Overall Morningstar Rating™ of BUFIX based on risk-adjusted returns among 405 Foreign Large Growth funds as of 10/31/20.
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 10/31/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||-0.06||1.36||7.42||5.93||9.05||6.73||4.90|
|BUFFALO INTERNATIONAL FUND - Institutional||-0.06||1.48||7.55||6.08||9.21||6.89||5.05|
|Morningstar Global Markets ex-US Index||0.05||-7.23||-2.27||0.01||4.72||3.94||1.69|
|Lipper International Fund Index||-0.66||-6.32||-1.13||0.15||4.25||4.41||1.69|
|Morningstar Foreign Large Growth Category||1.53||6.08||12.71||5.73||7.86||6.47||3.00|
|As of 9/30/20||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||10.50||5.33||15.51||8.00||11.30||7.61||5.24|
|BUFFALO INTERNATIONAL FUND - Institutional||10.55||5.45||15.65||8.16||11.46||7.77||5.40|
|Morningstar Global Markets ex-US Index||6.64||-5.21||3.49||1.36||6.67||4.51||1.87|
|Lipper International Fund Index||5.92||-3.53||5.28||1.67||6.23||5.09||1.93|
|Morningstar Foreign Large Growth Category||9.63||8.10||18.53||7.17||9.70||7.12||3.21|
3 Year Risk Metrics
|BUFIX vs Morningstar Global Markets ex-US Index (As of 9/30/20)|
Hypothetical Growth of $10,000
|(As of 9/30/20)|| |
|# of Holdings||83|
|Median Market Cap||$36.26 B|
|Weighted Average Market Cap||$78.56 B|
|3-Yr Annualized Turnover Ratio||21.70%|
Top 10 Holdings
|Name of Holding||Ticker||Country||Sector||% of Net|
|Lonza Group||LONN||Switzerland||Health Care||2.48%|
|Taiwan Semiconductor||TSM||Taiwan, Province of China||Technology||2.20%|
|Ashtead Group||ASHTF||United Kingdom||Industrials||2.10%|
|Eurofins Scientific||ERF||France||Health Care||2.00%|
|TOP 10 HOLDINGS TOTAL||21.56%|
Top 10 Countries
|COUNTRY||% of Portfolio|
|Taiwan, Province of China||2.20%|
|TOP 10 TOTAL||72.41%|
CAPITAL MARKET OVERVIEW
(As of 9/30/20) — Global equity markets sustained their momentum in the 3rd quarter with the MSCI ACWI Index returning 8.41%. Macro data continued to improve and companies broadly reported earnings that proved to be more resilient than expectations. While the world experienced another increase in COVID-19 cases during the quarter, positive news flow on vaccines and therapy fronts continued to provide hope for investors, and optimism for the possibility of a V-shaped recovery drove markets higher. Nearly all industry sectors rose during the period, with the exception of Energy, which was hurt by lingering weakness in oil demand. While the international stock market advance was not quite as robust as in the U.S. markets, the MSCI ACWI ex-US Index rose 6.25%, and the MSCI EAFE Index rose 4.80%. Meanwhile, emerging market indexes continued their strong rebound during the period with a return of 9.56%, as measured by the MSCI Emerging Markets Index.
(As of 9/30/20) — The Buffalo International Fund (BUFIX) produced a return of 10.50% for the quarter, outperforming the Morningstar Global Markets ex-US Index’s return of 6.64%. Stock selection was the main driver of performance during the period. However, the sector allocation impact was also supportive due to an underweight to Energy and Financials, which were weaker performing benchmark sectors. The Fund’s allocation to cash detracted from relative results during the markets’ strong advance.
Top contributors in the period included Taiwan Semiconductor Manufacturing Co., Sartorius Stedim Biotech SA, and Hexagon. Taiwan Semiconductor, the largest contract semiconductor manufacturer in the world, recovered faster than expected from the pandemic and forecasted better future sales from 5G smartphone demand. Sartorius Stedim, a manufacturer of equipment for the production of biologic drugs, continued to benefit from the growing demand for its products by the pharmaceutical industry, as well as some incremental demand for the increased production of vaccines. Hexagon, a technology and software provider in the fields of geosystems and metrology, continues to benefit from organic growth in its software business related to the increased digitalization of industry.
Partially offsetting the contributions from above included lagging results from Fresenius AG, VINCI SA, and Hannover Rueck. Fresenius, a healthcare holding company, has suffered from COVID-related effects this year, given that its hospital business has a portion of operations in Spain where the virus continued to weigh on the company’s procedures. Vinci, a global player in concessions and construction, had a weakening stock price in the quarter after a run up in June around optimism that the airport concessions in Europe could see a revival with the opening of summer tourism. With the continuation of the COVID crisis, airports remain weak. However, the larger part of Vinci’s business, related to motorways, has been trending back toward normal, and the pipeline of concessions, the cash generative business, and valuation remain attractive reasons to continue to own the stock for the longer term. Hannover Re, the 3rd largest global reinsurance company, reported disappointing earnings in August due to impacts from the virus, but the outlook for price increases into 2021 remains positive for this best-in-class reinsurer.
(As of 9/30/20) — As we experienced in September, 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 European countries have once again implemented various kinds of lockdown measures to control its spread, which is negatively affecting freedom of personal movement and business potential. We expect to see continued market volatility over the next few quarters, as we will likely be in a period of economic uncertainty where most companies have limited visibility into the near-term future of their businesses. 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 been on the rise, and the continued pandemic and ensuing economic stress could cause further turmoil. Given the damage to trade that the pandemic has caused, the rising 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 COVID-19 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.
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.
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.
- 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.