Discovery Fund

Discovery Fund

Quick Facts
InvestorInstitutional
Ticker:BUFTXBUITX
Inception Date:4/16/20017/1/2019
Expense Ratio:1.02%0.87%
Total Net Assets:$1.75 Billion  (9/30/19)
Category:Mid Cap Growth
Benchmark:Morningstar U.S. Mid Growth
Related Material:
   Fund Fact Sheet Q3 2019
   PM Commentary Q3 2019
   Summary Prospectus
For a full transcript of this video, click here.
Innovation in Action

Portfolio Managers Clay Brethour and Dave Carlsen discuss how their focus on secular growth trends and innovation helps drive their investment strategy for the Buffalo Discovery Fund.

“Innovation in its most simple terms is change for the better. We look for companies that embrace change, think differently, think outside the box to create something new…”
  ~ Dave Carlsen, CFA, Co-Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFTX based on risk-adjusted returns among 556 Midcap Growth funds as of 10/31/19.

Investment Style
FUND OBJECTIVE & INVESTMENT PROCESS

The investment objective of the Buffalo Discovery Fund is long-term growth of capital.

The Fund managers seek to identify companies expected to benefit from innovation and experience growth based on the identification of long-term, measurable secular trends, and which, as a result, the managers believe may have potential revenue growth in excess of the gross domestic product growth rate.

Companies engaged in innovative strategies are those who, in the Fund managers’ opinion, are engaged in the pursuit and practical application of knowledge to discover, develop, and commercialize products, services, or intellectual property.

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, and competitive advantages.

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To us, innovation means to discover and transform new ideas into meaningful commercial value. The greater the economic impact and the longer the staying power, the better.

We seek under-appreciated stock opportunities in companies where thoughtful management teams are in a favorable position to use innovation for market advantage and sustained shareholder value creation.

Clay Brethour, CFA, Co-Portfolio Manager

Performance (%)

As of 10/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(4/16/01)
BUFFALO DISCOVERY FUND - Investor-2.9225.8518.3114.7211.2214.8411.069.36
BUFFALO DISCOVERY FUND - Institutional-2.8826.0418.5114.9011.3915.0211.239.52
Morningstar U.S. Mid Growth Index-3.4227.0718.2317.1410.7114.4910.528.04
Morningstar Mid-Cap Growth Category-2.3324.3114.1315.089.4913.189.366.87
As of 9/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(4/16/01)
BUFFALO DISCOVERY FUND - Investor-0.7426.136.2613.7711.7614.4111.379.41
BUFFALO DISCOVERY FUND - Institutional-0.7126.276.4213.9411.9314.5811.539.58
Morningstar U.S. Mid Growth Index-3.0825.583.9115.1711.2213.9210.748.01
Morningstar Mid-Cap Growth Category-1.8022.761.1013.109.8912.569.486.83
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
BUFTX vs Morningstar U.S. Mid Growth Index (As of 9/30/19)
Upside Capture89.27
Downside Capture92.21
Alpha0.32
Beta0.89
Sharpe Ratio0.93
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.

Portfolio

Portfolio Characteristics
(As of 9/30/19) 
 
# of Holdings91
Median Market Cap$14.37 B
Weighted Average Market Cap$17.91 B
3-Yr Annualized Turnover Ratio58.88%
% of Holdings with Free Cash Flow92.31%
Active Share69.47%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
The Cooper Cos.COOHealth Care1.94%
Verisk AnalyticsVRSKIndustrials1.77%
MSCIMSCIFinancial Services1.77%
IDEXX LabsIDXXHealth Care1.77%
CopartCPRTConsumer Discretionary1.72%
Republic ServicesRSGIndustrials1.72%
International Flavors & FragranceIFFMaterials1.60%
IHS MarkitINFOIndustrials1.59%
Align TechnologyALGNHealth Care1.58%
Exact SciencesEXASHealth Care1.56%
TOP 10 HOLDINGS TOTAL17.02%
As of 6/30/19. 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.
Sector Weighting
As of 9/30/19. 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.
Market Capitalization
As of 9/30/19. Market Cap percentages may not equal 100% due to rounding.

Management

Clay Brethour, CFA
Portfolio Manager

27 Years of Experience

 View full bio

Dave Carlsen, CFA
Portfolio Manager

27 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.

The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.

PERFORMANCE COMMENTARY

(As of 9/30/19) — The Buffalo Discovery Fund returned -0.74% during the quarter, outperforming the benchmark Morningstar U.S. Mid Growth Index return of -3.08%. Strong stock selection within the Information Technology and Consumer Discretionary sectors more than offset weak performance of the Fund’s Material sector holdings, as concerns of a slowing world economy weighed on cyclical stocks. During the quarter, the Fund was more conservatively-positioned compared to the benchmark. However, the Fund is starting to take advantage of recent weakness in cyclical sensitive stocks and finding opportunities at more reasonable valuations. Relative to the benchmark, the portfolio’s top three contributing sectors were Information Technology, Consumer Discretionary, and Energy. Materials and Consumer Staples were relative laggards.

TOP CONTRIBUTORS

Among the top contributors during the quarter were Insulet Corporation (PODD), Tyler Technologies (TYL), and KLA Tencor (KLAC).

Insulet is a medical device company that has developed an insulin infusion system (OmniPod) for people with insulin-dependent diabetes. The company reported a strong beat for 2nd quarter earnings, as adoption of unique wearable technology continues to accelerate. We believe the company continues to have a significant runway for growth.

Tyler Technologies, an integrator of technology and management solutions and services for public sector entities with a focus on local governments, saw its stock react positively after its 2nd quarter earnings report showed that its subscription offerings have passed critical mass and are now growing materially within the company’s revenue mix. Subscription software products (Software as a Service) give Tyler’s business model more attractive economics and predictability to its revenue stream. Given the need to modernize local governments’ legacy enterprise resource planning (ERP) systems, we believe that the company has a decade-long runway for 10% plus revenue growth.

KLA Corporation, a process control and yield management equipment provider to the semiconductor industry, guided to a stronger second half of 2019. This momentum should carry into 2020 as major customers pursue process technology transitions and begin implementing extreme ultraviolet (EUV) lithography that requires the advanced inspection tools developed by KLA Corp.

TOP DETRACTORS

The biggest detractors in the period were Align Technology (ALGN) and Abiomed (ABMD).

Align, as it traditionally does, gave conservative guidance for the next quarter, but it was the 2nd quarter case numbers that had investors wondering if management’s guidance was conservative enough with perceived competitive pressures in the clear dental aligner marketplace. We believe that the long-term revenue outlook of 20-30% annually continues to be achievable, given the vastly under-penetrated global market for clear aligners. Nonetheless, with two new public companies gaining more visibility for their own clear aligner product offerings through their initial public offerings, the stock could have some volatility in the short-term, as investors take a wait-and-see approach on whether Align’s market leadership becomes challenged. We believe it will remain the market leader and preferred clear aligner choice.

Meanwhile, Abiomed’s stock declined, as the company reported a second consecutive quarter of slowing revenue growth. However, we continue to like the company’s long-term growth opportunity. It operates in an under-penetrated market that has high barriers to entry, but, nonetheless, we will be closely monitoring management’s execution to reinvigorating its growth trajectory.

OUTLOOK

(As of 9/30/19) — We expect the U.S.–China trade dispute will be resolved in some fashion within the next six months. While it appears that the global economy is slowing, we believe a trade deal could spur the bull market upward, particularly for cyclical stocks that have been delaying corporate investment decisions until there is a resolution. Additional factors, such as low inflation, accommodative monetary policies throughout the world, and low unemployment rates should continue to provide a healthy backdrop for corporate earnings growth.

Easy money for much of the past 10 years and rising expectations for more accommodative monetary policies have led to asset inflation and generally-elevated growth stock valuations. Expensive stocks continue to be littered throughout the market, which provides the potential to protect shareholders from capturing the extreme downside of any market correction through prudent active investment management. While we trimmed economically-sensitive cyclical positions earlier in the year, due to high valuations, we are selectively putting capital to work in the area as valuations have come down and uncertainty reduced with the prospect of a trade agreement.

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. Investing in both actively and passively managed mutual funds involves risk and principal loss is possible. Earnings growth is not representative of the fund’s future performance.
DISCOVERY FUND NEWS

Discovery Fund

Total Assets $1.75 Billion  (9/30/19)
Expense Ratio 1.02% / 0.87%
Benchmark Morningstar U.S. Mid Growth

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 Discovery Fund (BUFTX) received 3 stars among 5544 for the 3-year, 4 stars among 495 for the 5-year, and 4 stars among 384 Mid-Cap Growth funds for the 10-year period ending 10/31/19.

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.

Dividend Focus Fund

Dividend Focus Fund

Quick Facts
InvestorInstitutional
Ticker:BUFDXBUIDX
Inception Date:12/3/20127/1/2019
Expense Ratio:0.96%0.81%
Total Net Assets:$60.54 Million  (9/30/19)
Category:Large Cap Blend
Benchmark:Morningstar U.S. Large-Mid Cap
Dividend Distribution:Quarterly
Related Material:
   Fund Fact Sheet Q3 2019
   PM Commentary Q3 2019
   Summary Prospectus
FUND OBJECTIVE & INVESTMENT PROCESS

The investment objective of the Buffalo Dividend Focus Fund is primarily current income, with long-term growth of capital as a secondary objective.

To pursue its investment objective, the Fund invests in dividend-paying equity securities, consisting of domestic common stocks, preferred stocks, and convertible securities. During normal market conditions, at least 80% of the Fund’s assets will be invested in dividend-paying equity securities, companies that declare and pay cash dividends on at least an annual basis.

While the Fund may invest in securities of companies of any size, the Fund managers expect the majority of common stocks purchased will be of large-cap companies, those with market capitalizations in excess of $10 billion at the time of initial purchase. In addition to investments in domestic securities, the Fund may invest up to 20% of its net assets in sponsored or unsponsored ADRs and securities of foreign companies that are traded on U.S. stock exchanges.

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We are focused on buying dividend-paying companies that can have sustainable competitive advantages, generate strong return on capital and free cash flow, have conservative balance sheets, and have great management teams.

We seek to buy these companies at reasonable valuations and believe that holding them for the long-term will generate favorable risk adjusted returns.

Paul Dlugosch, Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFDX based on risk-adjusted returns among 1,198 Large Blend funds as of 10/31/19.

Investment Style

Performance (%)

As of 10/31/193 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
BUFFALO DIVIDEND FOCUS FUND - Investor1.8019.9410.9212.578.9012.52
BUFFALO DIVIDEND FOCUS FUND - Institutional1.8920.1311.1312.769.0712.70
  Morningstar U.S. Large-Mid Cap Index2.0923.2814.4814.8310.5613.99
  S&P 500 Index2.4323.1614.3314.9110.7814.08
  Morningstar Large Blend Category1.8221.1812.6613.148.9411.96
As of 9/30/193 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
BUFFALO DIVIDEND FOCUS FUND - Investor2.5318.333.2211.459.5812.47
BUFFALO DIVIDEND FOCUS FUND - Institutional2.6218.523.4311.639.7612.64
  Morningstar U.S. Large-Mid Cap Index1.5120.734.2113.2910.6413.83
  S&P 500 Index1.7020.554.2513.3910.8413.91
  Morningstar Large Blend Category1.4518.983.0011.708.9811.83

* Partial year. Inception to year-end.

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
BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 9/30/19)
Upside Capture88.18
Downside Capture94.40
Alpha-0.41
Beta0.90
Sharpe Ratio0.89
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
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
9/18/19$17.80 (Inv)

$17.80 (Inst)
$0.04731858

$0.05327159
-

-
-

-
$0.04731858

$0.05327159
6/18/19$17.20$0.06566509--$0.06566509
3/19/19$16.72$0.05232873--$0.05232873
12/18/18$15.33$0.08791977$0.02500$0.51339$0.62630977
9/18/18$17.96$0.05499230--$0.05499230
6/19/18$16.99$0.05791680--$0.05791680
3/20/18$16.72$0.04369471--$0.04369471
12/19/17$16.73$0.05315489$0.15204-$0.20519489
9/19/17$15.79$0.05107348--$0.05107348
6/20/17$15.53$0.04405814--$0.04405814
3/20/17$15.37$0.04662158--$0.04662158
12/20/16$14.58$0.04502534$0.06489$0.03508$0.14499534
9/20/16$13.78$0.04538819--$0.04538819
6/20/16$13.34$0.04391608--$0.04391608
3/18/16$13.15$0.04845082--$0.04845082
12/18/15$12.88$0.04061333$0.14263$0.11942$0.30266333
9/18/15$12.94$0.03816853--$0.03816853
6/18/15$14.29$0.04120635--$0.04120635
3/18/15$13.89$0.04200730--$0.04200730
12/18/14$13.53$0.03066401$0.54808$0.10086$0.67960401
9/18/14$13.50$0.02424009--$0.02424009
6/18/14$13.05$0.03496855--$0.03496855
3/18/14$12.11$0.03702784--$0.03702784
12/18/13$11.56$0.04725764$0.38271-$0.42996764
9/18/13$11.47$0.03960545--$0.03960545
6/18/13$11.13$0.03967611--$0.03967611
3/19/13$10.36$0.01492578--$0.01492578
2019 Distribution Dates:

Record Date: December 17 | Payable Date: December 18


Portfolio

Portfolio Characteristics
(As of 9/30/19) 
 
# of Holdings81
Median Market Cap$95.26 B
Weighted Average Market Cap$257.24 B
3-Yr Annualized Turnover Ratio17.80%
% of Holdings with Free Cash Flow68.92%
30-day SEC Yield1.42%
Top 10 Holdings
HoldingTicker / MaturitySector% of Net
Assets
MicrosoftMSFTTechnology4.54%
VisaVFinancial Services3.72%
AppleAAPLTechnology2.99%
8x80.500%, 2/1/24Communications2.84%
American Electric PowerAEPUtilities2.29%
JPMorgan ChaseJPMFinancial Services2.04%
The Walt Disney CoDISConsumer Discretionary2.02%
S&P GlobalSPGIFinancial Services1.94%
Bank of AmericaBACFinancial Services1.92%
Berkshire HathawayBRK/BFinancial Services1.91%
TOP 10 HOLDINGS TOTAL26.21%
As of 6/30/19. 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.
Sector Weighting
As of 9/30/19. 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.
Market Capitalization
As of 9/30/19. Market Cap percentages may not equal 100% due to rounding.

Management

Paul Dlugosch, CFA
Portfolio Manager

22 Years of Experience

 View full bio

Jeff Sitzmann, CFA
Portfolio Manager

32 Years of Experience

 View full bio

Jeff Deardorff, CFA
Portfolio Manager

21 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.

The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.

PERFORMANCE COMMENTARY

(As of 9/30/19) — The Buffalo Dividend Focus Fund posted a return of 2.53%, outperforming the Morningstar U.S. Large-Mid Cap Index return of 1.51% and the S&P 500 Index return of 1.70%. Sector weightings and security selection influenced the Fund’s relative performance. Portfolio sectors with highest weightings – Information Technology, Financials, and Consumer Discretionary – posted positive absolute returns and the latter two sectors had favorable relative performance to comparable benchmark sectors. Some of the Fund’s least weighted sectors – Energy and Telecommunication Services (sectors comprising less than 11% of the Fund) – had negative returns with only Telecom lagging the comparable benchmark sector.

Top Contributors

Specific securities that contributed most positively to performance included Medicines Company (MDCO), Apple (AAPL), and Edison International (EIX). Medicines Company gained on favorable results from Phase 3 trial studies evaluating its LDL-cholesterol lowering drug, inclisiran. Apple rallied on new product announcements (iPhone 11 series) and services (Apple TV) with favorable price points. In addition, investors now expect a robust 5G phone launch next year. Meanwhile Edison International rose on passage of wildfire legislation in California and a secondary equity offering.

Top Detractors

Specific securities that detracted from performance include Anthem (ANTM), UnitedHealth Group (UNH), and 8×8 (EGHT). Anthem and UnitedHealth Group declined on reports health insurers are paying out a higher percentage of the premiums they take in to cover patients’ medical claims (medical-loss ratio or MLR) and presidential candidates pushing forms of single payer systems or “Medicare For All”. 8×8 dropped on concerns regarding customer acquisition costs and cash flow outlook.

OUTLOOK

(As of 9/30/19) — The modest gain in the stock market for the quarter was primarily driven by investor uncertainty regarding trade policies (U.S.–China, Brexit, etc.) and the Federal Reserve’s (the “Fed”) monetary policy. The lack of agreements on major trade deals (rhetoric regarding tariffs and no deal strategies) are curtailing companies from making long-term capital spending plans, which could lead to slowing or negative growth. Certain indicators such as yield curve inversions are already signaling a recession 6-18 months out. Resolving the trade deals (especially U.S.–China) would provide companies with more certainty to make capital investment decisions, boost consumer confidence, and accelerate gross domestic product and revenue growth. Lack of progress could raise the prospects for an economic slowdown. The Fed will need to adjust their policy accordingly. During the quarter, the Fed delivered on their dovish outlook by cutting rates twice and growing the balance sheet. They indicated they are data-dependent, with trade policies creating economic uncertainties. With the federal funds rate below 2%, there is only limited ability to cut rates (before going negative). The Fed will likely have to use its balance sheet if it needs to be aggressive with its policy.

Despite the uncertainty regarding trade policies and the Fed reaction, we remain focused on wide moat, large capitalization companies trading at reasonable valuations, in our view. As always, the fund will continue to emphasize on competitively advantaged companies that can be purchased at a fair value, in our opinion. As stock market volatility spikes, we will look for opportunities to find companies that fit our investment criteria, as we continue to follow our process of finding new investment ideas and to be ready when market declines provide better entry points.

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 Dividend Focus Fund (BUFDX) received 3 stars among 1,198 for the 3-year period and 3 stars among 1,058 Large Blend funds for the 5-year period ending 10/31/19.

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.

Emerging Opportunities Fund

Emerging Opportunities Fund

Quick Facts
InvestorInstitutional
Ticker:BUFOXBUIOX
Inception Date:5/21/20047/1/2019
Expense Ratio:1.49%1.34%
Total Net Assets:$81.71 Million  (9/30/19)
Category:Small Cap Growth
Benchmark:Morningstar U.S. Small Growth
Related Material:
   Fund Fact Sheet Q3 2019
   PM Commentary Q3 2019
   Summary Prospectus
Recent Media Coverage
Fund Objective & Investment Process

The investment objective of the Buffalo Emerging Opportunities Fund is long-term growth of capital. The Fund invests primarily in equity securities, consisting of a portfolio of between 50-70 domestic common stocks, preferred stocks, convertible securities, warrants and rights, of companies that, at the time of purchase by the Fund, have market capitalizations of $1.5 billion or less.

The Fund managers seek to identify companies for the Fund’s portfolio that are expected to experience growth based on the identification of long-term, measurable secular trends, and which, as a result, may have potential revenue growth in excess of the gross domestic product growth rate. Companies are screened using in-depth, in-house research to identify premier early-stage growth companies which generally demonstrate:

  • Strong management teams
  • Little or no debt
  • Potential for increasing free cash flow
  • Scalable business models with a competitive advantage
  • Potential for increasing margins
  • Attractive risk/reward given the market framework
|
We believe investing in an actively-managed portfolio of premier, early-stage, growth companies could lead to growth of capital over time. We look for companies that could benefit from long-term industrial, technological, or general market trends, and are trading at what we view as attractive valuations.

Craig Richard, Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFOX based on risk-adjusted returns among 573 Small Growth funds as of 10/31/19.

Investment Style

Performance (%)

As of 10/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/21/04)
BUFFALO EMERGING OPPORTUNITIES FUND - Investor-1.1023.0712.8617.829.4715.349.038.64
BUFFALO EMERGING OPPORTUNITIES FUND - Institutional-0.9823.3113.1118.029.6515.529.208.80
  Morningstar U.S. Small Growth Index-4.1619.727.7814.739.2713.919.359.16
  Morningstar Small Growth Category-3.5218.976.6614.248.8713.129.018.33
As of 9/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/21/04)
BUFFALO EMERGING OPPORTUNITIES FUND - Investor-4.6519.02-3.5813.699.9814.268.938.45
BUFFALO EMERGING OPPORTUNITIES FUND - Institutional-4.5919.19-3.4113.8710.1514.439.098.61
  Morningstar U.S. Small Growth Index-4.4516.94-8.1311.479.8812.859.429.05
  Morningstar Small Growth Category-4.1716.80-7.5211.529.6312.299.068.24
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
BUFOX vs Morningstar U.S. Small Growth Index (As of 9/30/19)
Upside Capture96.34
Downside Capture86.68
Alpha3.76
Beta0.84
Sharpe Ratio0.77
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.

Portfolio

Portfolio Characteristics
(As of 9/30/19) 
 
# of Holdings67
Median Market Cap$1.02 B
Weighted Average Market Cap$1.43 B
3-Yr Annualized Turnover Ratio41.24%
% of Holdings with Free Cash Flow49.25%
% of Holdings with No Net Debt46.27%
Active Share95.30%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
Kornit DigitalKRNTIndustrials3.33%
8x8EGHTCommunications3.15%
Hamilton LaneHLNEFinancials2.96%
CardlyticsCDLXTechnology2.82%
MimecastMIMETechnology2.70%
CyberArk SoftwareCYBRTechnology2.68%
Kinsale Capital GroupKNSLFinancial Services2.62%
Community Healthcare TrustCHCTReal Estate2.60%
EnvestnetENVTechnology2.37%
i3 VerticalsIIIVTechnology2.28%
TOP 10 HOLDINGS TOTAL27.51%
As of 6/30/19. 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.
Sector Weighting
As of 9/30/19. 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.
Market Capitalization
As of 9/30/19. Market Cap percentages may not equal 100% due to rounding.

Management

Craig Richard, CFA
Portfolio Manager

17 Years of Experience

 View full bio

Doug Cartwright, CFA
Portfolio Manager

13 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.

The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.

PERFORMANCE COMMENTARY

(As of 9/30/19) — The Buffalo Emerging Opportunities Fund posted a -4.65% return for the 3rd quarter. This compares to the Morningstar U.S. Small Growth Index’s return of -4.45%.

Despite some giveback in the quarter, the Fund has returned 19.02% calendar year-to-date, higher than the Index return of 16.94%. In the quarter, we continued to see outperformance by the larger constituents (larger market caps) within the small cap growth universe, a trend that has prevailed all year. The choppiness seen in the quarter was due to many of the overall market sentiment drivers in the quarter (trade tensions, Federal Reserve policy, etc.) in addition to some push-back on valuation of high-growth, high-relative-valuation stocks.

The Fund experienced positive contributions from Health Care holdings, which was offset by underperformance from Information Technology holdings. Health Care holdings returned -0.49% on average versus the Index’s return of -9.18%. Within Information Technology, the Fund’s holdings returned -8.42%, compared to the Index’s return of -3.08%. The Fund’s two largest sector exposures remain Information Technology and Industrials while the portfolio remains underweight Health Care given our considerable underweight to the biotech industry. The Fund ended the quarter with 67 holdings.

OUTLOOK

(As of 9/30/19) — The market seemed to struggle for direction in the 3rd quarter, with daily headlines involving trade tensions, monetary policy, political back and forth, amongst other headlines. We believe the Federal Reserve will continue to look for ways to bolster the economy as is has for 10 years now, and a resolution on China trade will likely happen before the 2020 election.

We operate on the small end of the small cap growth spectrum and continue to seek ideas that can sustain growth due to secular growth trends, or due to the innovation and disruption they are introducing to an industry. We believe less investor interest in our segment of the market creates opportunities for us to uncover value. As always, we will be paying close attention to the valuations of portfolio holdings, and we will utilize market volatility to trim or add to holdings as risk/reward profiles improve or degrade.

The Buffalo Emerging Opportunities Fund is focused primarily on identifying innovation within U.S. companies with primarily North American revenue bases. We continue to look for prudent ways to deploy cash, and we remain long-term focused, aiming to be shrewd when the market environment presents opportunity and more cautious when it does not. With an active share of greater than 95%, the Fund will continue to offer a distinct offering from the Index and category peers.

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 Emerging Opportunities Fund (BUFOX) received 4 stars among 573 for the three-year, 3 stars among 514 for the five-year, and 4 stars among 393 Small Growth funds for the ten-year period ending 10/31/19.

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.

Flexible Income Fund

Flexible Income Fund

Quick Facts
InvestorInstitutional
Ticker:BUFBXBUIBX
Inception Date:8/12/19947/1/2019
Expense Ratio:1.01%0.86%
Total Net Assets:$581.82 Million  (9/30/19)
Category:Large Cap Value
Benchmark:60% Morningstar U.S. Large Cap

40% ICE BofAML U.S. High Yield
Dividend Distribution:Monthly
Related Material:
   Fund Fact Sheet Q3 2019
   PM Commentary Q3 2019
   Summary Prospectus
Fund Objective & Investment Process

The investment objective of the Buffalo Flexible Income Fund is primarily the generation of high current income and, as a secondary objective, the long-term growth of capital.

To pursue its investment objectives, the Flexible Income Fund invests in both debt and equity securities.

The allocation of assets invested in each type of security is designed to balance income and long-term capital appreciation with reduced volatility of returns. The Flexible Income Fund expects to change its allocation mix over time based on the Fund managers’ view of economic conditions and underlying security values.

 ▼
|
Our investment strategy seeks to generate yield for any investor needing monthly income with capital appreciation, and we use many methods to address potential downside risks.

John Kornitzer, Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFBX based on risk-adjusted returns among 307 Allocation 70-85% Equity funds as of 10/31/19.

Investment Style

Performance (%)

As of 10/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND - Investor0.6012.995.368.044.918.026.907.09
BUFFALO FLEXIBLE INCOME FUND - Institutional0.7113.135.518.205.068.187.067.25
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
1.97
2.66
0.94
18.58
23.12
11.76
11.96
14.39
8.32
11.69
15.45
6.04
8.71
11.07
5.17
11.26
13.64
7.69
8.32
9.11
7.13
8.76
9.63
7.46
  Lipper Mixed-Asset Target Allocation Moderate Funds Index1.7214.2610.557.775.467.565.826.90
  Morningstar Allocation 70-85% Equity Category1.5016.009.888.785.668.646.477.01
As of 9/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND - Investor1.1113.500.177.634.948.187.007.13
BUFFALO FLEXIBLE INCOME FUND - Institutional1.1413.620.317.795.108.347.167.29
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
1.57
1.81
1.22
16.73
20.22
11.50
5.06
4.23
6.30
10.78
13.92
6.07
8.77
11.05
5.36
11.07
13.21
7.85
8.32
9.03
7.25
8.72
9.56
7.47
  Lipper Mixed-Asset Target Allocation Moderate Funds Index0.9912.924.466.925.487.325.826.87
  Morningstar Allocation 70-85% Equity Category0.5314.331.337.555.668.266.466.98

* Morningstar U.S. Large Cap Index (60%) / ICE BofAML U.S. High Yield Index (40%)
** S&P 500 Index (60%) / ICE BofAML U.S. High Yield Index (40%)

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.
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
2019 Distribution Dates:

Record Date: November 18 | Payable Date: November 19

Record Date: December 17 | Payable Date: December 18


Record
Date
Payable
Date
Distribution
NAV
Net Investment
Income
Short-Term Capital
Gains
Long-Term Capital
Gains
Distribution
Total
10/17/1910/18/19$15.12 (Inv)

$15.11 (Inst)
$0.01145893

$0.01334413
-

-
-

-
$0.01145893

$0.01334413
9/17/199/18/19$15.41 (Inv)

$15.40 (Inst)
$0.01890039

$0.02069821
-

-
-

-
$0.01890039

$0.02069821
8/19/198/20/19$14.71 (Inv)

$14.70 (Inst)
$0.04961371

$0.05168269
-

-
-

-
$0.04961371

$0.05168269
7/17/197/18/19$15.27 (Inv)

$15.27 (Inst)
$0.00826352

$0.00940197
-

-
-

-
$0.00826352

$0.00940197
6/17/196/18/19$15.13$0.02141209--$0.02141209
5/17/195/20/19$15.01$0.05121407--$0.05121407
4/17/194/18/19$15.43$0.01351815--$0.01351815
3/18/193/19/19$15.18$0.03240602--$0.03240602
2/19/192/20/19$15.12$0.01889814--$0.01889814
1/17/191/18/19$14.58$0.02098656--$0.02098656
For historical distributions, click here.

Portfolio

Portfolio Characteristics
(As of 9/30/19) 
 
# of Equity Holdings59
# of Fixed Holdings7
Median Market Cap$48.76 B
Weighted Average Market Cap$169.35 B
3-Yr Annualized Turnover Ratio3.81%
Average Duration1.75 years
Average Maturity4.96 years
30-day SEC Yield2.42%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
BoeingBAIndustrials4.24%
MicrosoftMSFTTechnology4.02%
ChevronCVXEnergy3.11%
Johnson & JohnsonJNJHealth Care3.02%
BB&TBBTFinancials2.63%
BPBPEnergy2.53%
Waste ManagementWMIndustrials2.50%
CloroxCLXConsumer Staples2.42%
GlaxoSmithKlineGSKHealth Care2.40%
IntelINTCTechnology2.39%
TOP 10 HOLDINGS TOTAL29.26%
As of 6/30/19. 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.
Sector Weighting
As of 9/30/19. 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.
Asset Allocation
As of 9/30/19. Allocation percentages may not equal 100% due to rounding.

Management

John Kornitzer
Portfolio Manager

51 Years of Experience

 View full bio

Paul Dlugosch, CFA
Portfolio Manager

22 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.

The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.

PERFORMANCE COMMENTARY

(As of 9/30/19) — The Buffalo Flexible Income Fund produced a return of 1.11% for the quarter, which underperformed the Morningstar U.S. Large Cap Index return of 1.81%. The Fund’s peer group index, the Lipper Mixed-Asset Allocation Moderate Funds Index, produced a return of 0.99% for the quarter.

EQUITIES PERFORMANCE

The equity portion of the portfolio returned 1.27%, which trailed the Morningstar U.S. Large Cap Index. The relative underperformance was primarily driven by the Energy sector. The underperformance within Energy was primarily due to the sector allocation impact as the Fund was overweight the worst performing sector of the Index. Energy companies have underperformed the broader market due to several reasons including, secular growth fears around fossil fuels, market share losses to renewables, the ability of shale drillers to generate sufficient cash flow to service debt at current price levels, as well as investor acceptance of ESG (environmental, social and governance) standards, which typically avoid investment in fossil fuel securities.

Specific investments that negatively-impacted Fund performance included Pfizer, Schlumberger, and Lions Gate Entertainment. Pfizer shares declined due to the dilutive spin-off of its Upjohn unit (merging with Mylan) as investors re-rated Pfizer based on its new pro-forma margin structure, which will be lower going forward due to the spin off. Meanwhile Schlumberger has been negatively-impacted by the weak macro environment for exploration and production (E&P) which has resulted in declines in drilling activity and eroded fracking pricing. Finally, shares of Lions Gate Entertainment dropped when the company lowered its earnings growth rate from low-to-mid-teens to mid-to-high-single digits. The top three contributors to the Fund’s performance during the quarter were Proctor & Gamble, HollyFrontier, and AT&T.

FIXED INCOME PERFORMANCE

The fixed income portion of the portfolio represented roughly 5% of fund assets during the period. The best performers within the fixed income portion were the Medicines Corp 2.5% convertible bonds and the Everi Payments 7.5% senior notes. The Medicines converts benefited from positive clinical trial data for its cholesterol drug, inclisirin, while Everi Payments benefited from positive underlying fundamentals and news that the company was exploring strategic alternatives including a possible sale.

OUTLOOK

(As of 9/30/19) — Over the first three quarters of the year, the stock market has been primarily driven by expansion in market valuation metrics, as earnings have been relatively flat. Aiding the valuation expansion has been the Federal Reserve’s (the “Fed”) dovish pivot on monetary policy, indicating that future interest rate action will be down. The Fed has become concerned with inflation running below their targeted levels and slowing economic growth. Vagaries regarding trade policy (tariffs and trade agreements), evolving geopolitical risks, and the divided Congress further limit their forecasting abilities. A key driver for further stock market advancement is likely to be impacted by trade and tariff news and how aggressive the Fed cuts rates and how many cuts they ultimately decide to make. As always, we appreciate your confidence in our investment capabilities 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.

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 Flexible Income Fund (BUFBX) received 2 stars among 307 for the 3-year, 2 stars among 274 for the 5-year, and 3 stars among 194 Allocation 70-85% Equity funds for the 10-year period ending 10/31/19.

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.

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.
Growth Fund

Growth Fund

Quick Facts
InvestorInstitutional
Ticker:BUFGXBIIGX
Inception Date:5/19/19957/1/2019
Expense Ratio:0.92%0.77%
Total Net Assets:$172.57 Million  (9/30/19)
Category:Large Cap Growth
Benchmark:Morningstar U.S. Growth
Related Material:
   Fund Fact Sheet Q3 2019
   PM Commentary Q3 2019
   Summary Prospectus
Fund Objective & Investment Process

The investment objective of the Buffalo Growth Fund is long-term growth of capital. The Growth Fund invests in domestic common stocks and other U.S. equity securities, including preferred stock, convertible securities, warrants and rights, with a goal of maintaining at least 75% of the equity weighting of the Fund’s portfolio in companies with market capitalizations greater than $5 billion or the median of the Morningstar U.S. Growth Index, whichever is lower. Capitalization of the Morningstar U.S. Growth Index changes due to market conditions and index composition.

With respect to the remaining 25% of the equity weighting of the Fund’s portfolio, the Fund may invest in companies of any size, including, but not limited to, those with market capitalizations less than the lower of the median of the Morningstar U.S. Growth Index or $5 billion.

The Fund managers seek to identify companies that are expected to experience growth based on the identification of long-term, measurable secular trends, and which, as a result, the managers believe may have potential revenue growth in excess of the gross domestic product growth rate. Companies are screened using in-depth, in-house research to identify those which the managers believe have favorable attributes, including attractive valuation, strong management, conservative debt, free cash flow, scalable business models, and competitive advantages.

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The Growth Fund invest in secular trend leaders: attractively-priced, financially-strong, well-managed companies across all market cap segments, which we believe are favorably positioned to harvest the lion’s share of big secular growth trends.

Dave Carlsen, CFA, Co-Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFGX based on risk-adjusted returns among 1,232 Large Growth funds as of 10/31/19.

Investment Style

Performance (%)

As of 10/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
BUFFALO GROWTH FUND - Investor-0.1125.1319.1016.4011.3913.649.8810.28
BUFFALO GROWTH FUND - Institutional-0.0425.3119.3116.5811.5613.8110.0510.44
  Morningstar U.S. Growth Index-0.3225.4816.9119.0012.6315.1510.09-
  Lipper Large Cap Growth Fund Index0.3624.0615.7617.7811.9213.869.358.40
  Morningstar Large Growth Category0.1523.2214.5116.3811.0013.639.398.53
As of 9/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
BUFFALO GROWTH FUND - Investor-0.2622.884.8014.4211.2013.039.7410.23
BUFFALO GROWTH FUND - Institutional-0.2223.014.9514.5911.3713.209.9110.40
  Morningstar U.S. Growth Index-1.0122.492.4216.8812.7514.6710.07-
  Lipper Large Cap Growth Fund Index-0.4221.162.7615.9612.0413.379.278.33
  Morningstar Large Growth Category-0.4720.541.8714.6211.0413.139.338.47
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
BUFGX vs Morningstar U.S. Growth Index (As of 9/30/19)
Upside Capture86.74
Downside Capture93.36
Alpha-0.50
Beta0.89
Sharpe Ratio1.01
Hypothetical Growth of $10,000
This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund on the inception date of the benchmark index (6/30/97). This chart does not imply future performance.

Portfolio

Portfolio Characteristics
(As of 9/30/19) 
 
# of Holdings54
Median Market Cap$61.00 B
Weighted Average Market Cap$248.44 B
3-Yr Annualized Turnover Ratio23.62%
% of Holdings with Free Cash Flow91.23%
Active Share60.75%
Top 10 Holdings
Name of HoldingTickerSector% of Net
Assets
MicrosoftMSFTTechnology7.87%
AmazonAMZNConsumer Discretionary5.28%
Abbott LabsABTHealth Care2.76%
VisaVFinancials2.75%
MastercardMAFinancials2.73%
LindeLINMaterials2.50%
Alphabet (C)GOOGTechnology2.48%
Danaher CorpDHRHealth Care2.26%
The Walt Disney CoDISConsumer Discretionary2.24%
Home DepotHDConsumer Discretionary2.23%
TOP 10 HOLDINGS TOTAL33.10%
As of 6/30/19. 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.
Sector Weighting
As of 9/30/19. 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.
Market Capitalization
As of 9/30/19. Market Cap percentages may not equal 100% due to rounding.

Management

Clay Brethour, CFA
Portfolio Manager

27 Years of Experience

 View full bio

Dave Carlsen, CFA
Portfolio Manager

27 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.

The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.

PERFORMANCE COMMENTARY

(As of 9/30/19) — The Buffalo Growth Fund (the “Fund”) returned -0.26% during the quarter, slightly outperforming the Morningstar U.S. Growth Index (the “Index”) which returned -1.01%. The Index experienced significant volatility, bottoming in early August, followed by gains through the end of September, to finish slightly lower for the quarter.

Sector returns varied considerably, with investor uncertainty about U.S. trade policy and future economic growth leading to significant return dispersion across sectors. The Real Estate sector was up the most, returning nearly 9%. Telecom Services, Consumer Staples, and Materials also produced positive sectors returns. Energy declined the most, nearly -20%, while Consumer Discretionary and Health Care also produced negative sector returns. Industrials and Technology were relatively flat.

The top contributing sectors for the Fund relative to the benchmark were Consumer Discretionary, Financials, and Technology. Consumer Staples and Health Care were relative laggards. Health Care lagged due, in part, to growing uncertainty about the prospect for pricing legislation and health care reform.

TOP CONTRIBUTORS

Among the top contributors during the period were Alphabet and Home Depot. Alphabet’s stock price rallied after the company reported 2nd quarter revenue growth reaccelerated to 20%+, thus reaffirming the growth thesis, after disappointing investor expectations in the previous quarter. Mobile advertising strength led the reacceleration and expense growth slowed to the delight of investors. Home Depot, one of the largest home improvement retailers in the U.S., experienced strong valuation multiple expansion after its 2nd quarter results proved better than feared. A growing investor appetite for U.S. revenue exposure and companies that can benefit from easing Federal Reserve interest rate policy and a strong jobs environment also propelled the stock.

TOP DETRACTORS

Align Technology, a producer of clear dental aligners, was the largest detractor during the quarter. In July, the company reported better-than-expected 2nd quarter revenues with an increase of over 20%, but lowered their 3rd quarter revenue outlook to a high-teens growth rate, citing consumer softness in China and slower young adult case volume growth in the U.S.

OUTLOOK

(As of 6/30/19) — The market environment appears fertile for active growth stock investing. Interest rates, inflation, and unemployment remain relatively low by historical standards, providing a healthy backdrop for corporate earnings growth. Meanwhile, global central bankers have recently pledged additional stimulus measures to keep the long-running economic expansion alive.

Countering this healthy backdrop are high valuations and deteriorating leading indicators on global trade. “Easy money” policies for much of the past 10 years, and rising expectations for more to come, have led to asset inflation and generally elevated growth stock valuations. Meanwhile, global trade tensions are weighing on consumer and business confidence, where recent surveys point to a slowdown amongst global purchasing managers.

We believe a volatile, more discerning market could materialize through the remainder of 2019. The volatility may favor judicious growth stock investors where a steady hand and active management with an eye toward quality, improving profit cycle dynamics, and relatively-attractive risk-adjusted returns could hold an advantage.

Economic conditions may ebb and flow, but our focus remains steadfast on investing in what we believe are attractively-priced, financially-strong, well-managed companies benefiting from secular growth opportunities.

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. Investing in both actively and passively managed mutual funds involves risk and principal loss is possible. 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 Growth Fund (BUFGX) received 3 stars among 1,232 for the 3-year, 3 stars among 1,095 for the 5-year, and 3 stars among 813 Large Growth funds for the 10-year period ending 10/31/19.

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.