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 394 Foreign Large Growth funds as of 7/31/19.
Portfolio Manager Insights
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 7/31/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||0.13||16.65||1.24||10.93||6.92||8.34||4.48|
|BUFFALO INTERNATIONAL FUND - Institutional||0.15||16.74||1.38||11.09||7.07||8.50||4.64|
|Morningstar Global Markets ex-US Index||-0.96||11.83||-2.56||7.02||2.72||6.06||1.80|
|Lipper International Fund Index||-1.60||12.57||-3.98||6.68||2.80||6.01||1.64|
|Morningstar Foreign Large Growth Category||0.27||17.11||-0.46||7.79||4.41||7.17||2.15|
|As of 6/30/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||Since Inception|
|BUFFALO INTERNATIONAL FUND - Investor||6.84||18.84||5.35||13.21||6.52||9.26||4.68|
|BUFFALO INTERNATIONAL FUND - Institutional||6.88||18.93||5.51||13.37||6.68||9.43||4.84|
|Morningstar Global Markets ex-US Index||2.74||13.16||0.77||9.25||2.73||7.16||1.92|
|Lipper International Fund Index||3.54||14.54||0.08||8.81||2.63||7.22||1.81|
|Morningstar Foreign Large Growth Category||4.81||18.29||2.25||9.63||4.09||8.20||2.26|
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
|BUFIX vs Morningstar Global Markets ex-US Index (As of 6/30/19)|
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.
|(As of 6/30/19)|| |
|# of Holdings||86|
|Median Market Cap||$26.44 B|
|Weighted Average Market Cap||$59.13 B|
|3-Yr Annualized Turnover Ratio||9.20%|
As of 6/30/19. Market Cap percentages may not equal 100% due to rounding.
Top 10 Holdings
|Name of Holding||Ticker||Country||Sector||% of Net|
|Sartorius Stedim Biotech||DIM||France||Health Care||2.20%|
|Carl Zeiss Meditec||AFX||Germany||Health Care||2.17%|
|Taiwan Semiconductor Manufacturing||TSM||Taiwan (China)||Technology||2.06%|
|Davide Campari-Milano||CPR||Italy||Consumer Staples||1.93%|
|LVMH Moet Hennessy||MC||France||Consumer Discretionary||1.92%|
|TOP 10 HOLDINGS TOTAL||20.95%|
As of 6/30/19. 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.
Top 10 Countries
|COUNTRY||% of Portfolio|
|TOP 10 TOTAL||77.98%|
CAPITAL MARKET OVERVIEW
(As of 6/30/19) — The S&P 500 Index posted its best first half return since 1997, rising over 18% for the first 6 months of the year. Not to be outdone, equity markets across the globe also moved higher, despite a perceived slowdown in global economic activity and a renewed increase in trade tensions during the quarter. Central Banks have all taken a dovish turn, and investors continue to take the view that with Central Banks in their corner little can go wrong. It wasn’t all smooth sailing during the period as rising trade tensions and a slow-down in industrial activity pushed markets lower in May. June saw a reversal higher as Mario Draghi, President at the European Central Bank (ECB), and our own Federal Reserve all but promised looser rather than tighter monetary policy for the future.
(As of 6/30/19) — For the quarter ending June 30, 2019, the Buffalo International Fund produced a return of 6.84%, outperforming the Morningstar Global Markets ex-U.S. Index’s return of 2.74%. Stock selection and a positive country allocation impact were the primary drivers of performance during the period. Our overweight to Germany and France, two of the better performing markets during the period, as well as a portfolio underweight to a weaker performing Japanese capital market contributed to relative results.
Overall, the sector allocation impact was fairly neutral during the period as the benefit of a portfolio underweight to the poorly performing Energy and Real Estate sectors was essentially offset by an underweight to Financials – a relative winner during the period – and a portfolio overweight to the lagging Health Care sector. The portfolio’s allocation to cash also detracted from relative results during the market’s advance, but, in spite of this, the Fund was able to outperform based on individual stock selection.
Top contributors in the period included Sartorius Stedim Biotech, Wirecard, and Carl Zeiss Meditec, all of which were helped by the secular nature of their revenue growth. Sartorius Stedim, which develops and manufactures laboratory equipment for the manufacturing of biological drugs, continued to benefit from the long-term opportunity of providing “picks and shovels” to the burgeoning biotechnology field, as supply chains continued to normalize. Wirecard, one of the fastest-growing online payment companies, continued to see strong organic volume growth. The stock bounced back from last quarter’s attack from short-sellers and their ongoing attempt to pester the company management team’s credibility. Meanwhile, Carl Zeiss Meditec, a leading provider of ophthalmic equipment and solutions, benefited from demographic trends and the ongoing roll out of their intraocular lenses.
Positions partially offsetting the contributions from those above during the period included Merck KGaA, Dalata Hotel Group, and Whitbread. One of Germany-based Merck’s business segments was hampered by continued pressure in its liquid crystal display business as an oversupply of panels reduced manufacturing demand and pressured margins. Dalata, an Ireland-based, city-center hotel group, sold off due to RevPar (revenue per available room) concerns, highlighted by competitors in the United Kingdom (UK), which we believe has little bearing on Dalata’s capacity utilization or revenue per room. Meanwhile, Whitbread experienced very sluggish RevPar numbers in their UK business, which put pressure on the stock. Nonetheless, Whitbread is poised to return excess cash of over $2 billion to shareholders this year, which we believe will help the supply and demand balance for shares.
(As of 6/30/19) — As Central Banks are poised to add more liquidity to capital markets and concerns surrounding growth and trade tension appear to be waning, markets will increasingly look to the upcoming earnings season to gauge company fundamentals as the tells of future performance. Despite the emphasis on looser monetary policies as a means to stimulate the economy, we view the economic benefits to be relatively modest outside of acting as impetus to push financial asset prices ever higher. While we expect economic activity in the 3rd quarter to continue to be unexciting, any reduction in trade or political tensions could markedly improve investor sentiment. We will continue to monitor the potential impact of this dynamic on the industries and companies in which we invest.
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. have become even less expensive relative to their domestic counter parts over the last few years. We hope to use any significant market dislocation caused by slowing economic growth or trade concerns to add to positions in companies whose long-term prospects remain unchanged, in our view.
Economic conditions may ebb and flow, but 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.
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.
International Fund News
Nicole Kornitzer (Buffalo International Fund co-PM) described her team’s top-down strategy of studying secular growth trends within the health care industry and identifies 3 companies which are well-positioned to benefit from these long-term trends.
In this report, we provide insights into several areas that show the potential for increasing returns of international stocks over the long term.
Bill Kornitzer, BUFIX co-portfolio manager, discusses the accelerated pace of the growth of global economies outside the U.S. and why, given where valuations are today, there are many opportunities to invest internationally at this time.
BUFIX portfolio managers recently held a live Q&A session for investment advisors, who posed questions regarding the current state of the international markets.
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.
The Buffalo International Fund (BUFIX) received 4 stars among 394 for the 3-year, 4 stars among 337 for the 5-year, and 4 stars among 249 Foreign Large Growth funds for the 10-year period ending 7/31/19.
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. ©2019 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.