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:$1.80 Billion  (7/1/19)
Category:Mid Cap Growth
Benchmark:Morningstar U.S. Mid Growth
Related Material:
   Fund Fact Sheet Q2 2019
   PM Commentary Q2 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 539 Midcap Growth funds as of 6/30/19.

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 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(4/16/01)
BUFFALO DISCOVERY FUND - Investor6.3327.0813.1216.4711.2716.3410.929.60
BUFFALO DISCOVERY FUND - Institutional6.3727.1713.2916.6411.4316.5111.089.76
Morningstar U.S. Mid Growth Index7.0629.5815.6417.9411.6216.0810.718.31
Russell Midcap Growth Index5.4026.0813.9416.4911.1016.0210.259.11
Morningstar Mid-Cap Growth Category5.6124.979.8815.599.7814.539.297.04
As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(4/16/01)
BUFFALO DISCOVERY FUND - Investor6.3327.0813.1216.4711.2716.3410.929.60
BUFFALO DISCOVERY FUND - Institutional6.3727.1713.2916.6411.4316.5111.089.76
Morningstar U.S. Mid Growth Index7.0629.5815.6417.9411.6216.0810.718.31
Russell Midcap Growth Index5.4026.0813.9416.4911.1016.0210.259.11
Morningstar Mid-Cap Growth Category5.6124.979.8815.599.7814.539.297.04

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.

As of July 27, 2018, the Morningstar U.S. Mid Growth Index has replaced the Russell Midcap Growth Index as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

3 Year Risk Metrics
BUFTX vs Morningstar U.S. Mid Growth Index (As of 6/30/19)
Upside Capture89.99
Downside Capture92.09
Alpha0.44
Beta0.89
Sharpe Ratio1.15
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 6/30/19) 
 
# of Holdings82
Median Market Cap$14.94 B
Weighted Average Market Cap$18.06 B
3-Yr Annualized Turnover Ratio59.68%
% of Holdings with Free Cash Flow90.48%
Active Share69.51%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
The Cooper Cos.COOHealth Care2.11%
MSCIMSCIFinancial Services1.84%
Roper TechnologiesROPIndustrials1.82%
IDEXX LabsIDXXHealth Care1.73%
Republic ServicesRSGIndustrials1.69%
Mettler Toledo InternationalMTDHealth Care1.69%
Align TechnologyALGNHealth Care1.69%
Bio TechneTECHHealth Care1.66%
Verisk AnalyticsVRSKIndustrials1.66%
Arista NetworksANETTechnology1.62%
TOP 10 HOLDINGS TOTAL17.51%
As of 3/31/19. 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 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.

Market Capitalization

As of 6/30/19. 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 3/31/19) — Equity markets rebounded sharply to start 2019. The widely followed S&P 500 Index returned 13.65% in the 1st quarter, its best quarterly performance in 10 years. The market advance can be largely attributed to the Federal Reserve’s decision to put quarterly short term interest rate hikes on hold and end its balance sheet runoff. Additionally, prospects for a trade agreement between the U.S. and China appeared to improve, and the U.S. Government reopened after its longest shut down in history.

The Russell 3000 Index advanced 14.04% in the 1st quarter. Growth outperformed value, with the Russell 3000 Growth Index returning 16.18% compared to a return of 11.93% for the Russell 3000 Value. By size, midcaps led the way this quarter with the Russell Midcap Index returning 16.54%, followed by a return of 14.58% for the small cap Russell 2000 Index and 14.00% for the large cap Russell 1000 Index. Technology, Real Estate, and Industrials were the best performing sectors, while Health Care and Financials were relative underperformers.

PERFORMANCE COMMENTARY

(As of 3/31/19) — The Buffalo Discovery Fund gained a very solid 19.52% during the quarter but trailed the benchmark Morningstar U.S. Mid Growth Index return of 21.03%. Stock selection within Information Technology and Health Care weighed on relative performance during the period. The Fund was not as aggressively-positioned in these sectors as the Index during a very strong rebound off December 2018 lows. The rebound was sparked by the Fed’s dovish pivot on interest policy, which rekindled appetite for risk. The Fund continues to invest in innovative growth stocks with relatively-attractive valuations, which we believe should be a key driver of above-index risk-adjusted returns over the long term.

TOP CONTRIBUTORS
Among the top contributors during the 4th quarter were MSCI, Inc. and Bio-Techne Corporation. MSCI, an index and exchange-traded fund (ETF) provider, rallied as prospects for asset-based fees improved and the market recovered. The company also reported quarterly results that showed its ETF business saw continued strong inflows and a sequential improvement in average fees despite the bout of market volatility.

Bio-Techne, a life sciences company that develops and sells biotechnology reagents and instruments for research and clinical diagnostic markets, reported better-than-expected quarterly results driven by strong biopharma industry demand for the company’s core protein sciences reagents and analytical solutions. The industry trend toward Good Manufacturing Practices (GMP), a system for ensuring that products are consistently produced and controlled according to quality standards, is driving a lift in average selling prices. Strong results in China, where organic growth exceeded 30%, also contributed to the positive performance.

TOP DETRACTORS
The biggest detractors in the period were ABIOMED, Inc. and Take-Two Interactive Software. ABIOMED was weak following a U.S. Food and Drug Administration (FDA) letter to doctors noting a higher mortality rate for ABIOMED’s Impella RP heart pump in a post-FDA approval study than what was seen in pre-approval studies. The Impella RP product is designed for use in specific clinical situations while the majority of patients in the post-approval study did not meet ABIOMED’s original enrollment criteria for treatment with the device. Both the FDA and ABIOMED suggest the Impella RP device’s efficacy was studied in a high-risk pool for which it was not well suited. The news introduced near term uncertainty to a stock price that embeds high growth expectations but appears to be an over-reaction in the near term. Impella RP represents less than 5% of total company sales. We believe the device, along with the rest of the ABIOMED product line, is highly efficacious when used as intended. We continue to think the company has a long runway for growth and market share gains within a $30 billion market.

Take-Two Interactive Software shares were weak after it lowered its forward guidance due to slower-than-expected monetization of its recently launched Red Dead Redemption 2 video game title. Competition for game player’s time and attention has been intense recently amid rapid uptake of competitive free-to-play games like Fortnite and Electronic Art’s Apex Legends. That followed a crowded new release schedule for the industry. Investor expectations have fallen significantly due to the near-term competitive intensity. However, we expect the pending release of Red Dead Online to catalyze improved monetization. The pipeline is also solid with new content releases expected to accelerate in the near term. The company has premium content, some of the best game development talent in the industry, and remains a prime beneficiary of the positive business model effects of downloadable games and in-game content, combined with a favorable outlook for growth in new users and engagement.

OUTLOOK

(As of 3/31/19) — 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 consumers and businesses. We don’t see a recession on the horizon nor a significant collapse in corporate earnings, but valuations are at lofty levels, especially for big secular growers. Earnings growth comparisons also get more difficult as we lap the positive effects of last year’s tax reform.

After a possible 1st quarter earnings reset, we suspect the backup in interest rates, a more dovish Federal Reserve stance, and a trade deal with China could extend the positive market sentiment. Later in the back half of 2019, market pundits could possibly return their focus to the Fed’s interest rate normalization process which may weigh on market multiples.

Taking all of this together, we believe a volatile, more discerning market could materialize through 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 attractively-priced, financially-strong, well-managed companies whose innovative strategies should fuel secular growth opportunities. We seek those opportunities where thoughtful management teams are in a favorable position to use innovation for market advantage and sustained value creation. Successful innovation may often lead to disruptive share gains in large existing markets or the creation of large new market opportunities, a strategy which we believe is less dependent on the overall macro environment for growth.

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 $1.80 Billion  (7/1/19)
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 4 stars among 539 for the 3-year, 4 stars among 484 for the 5-year, and 4 stars among 367 Mid-Cap Growth funds for the 10-year period ending 6/30/19.

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:$60.51 Million  (7/1/19)
Category:Large Cap Blend
Benchmark:Morningstar U.S. Large-Mid Cap
Dividend Distribution:Quarterly
Related Material:
   Fund Fact Sheet Q2 2019
   PM Commentary Q1 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 1,205 Large Blend funds as of 6/30/19.

Investment Style

Performance (%)

As of 6/30/193 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
BUFFALO DIVIDEND FOCUS FUND - Investor4.0615.418.4011.869.3412.55
BUFFALO DIVIDEND FOCUS FUND - Institutional4.1015.498.5612.039.5012.71
  Morningstar U.S. Large-Mid Cap Index4.3418.9310.3414.1910.4614.13
  S&P 500 Index4.3018.5410.4314.1910.7114.19
  Morningstar Large Blend Category3.8117.218.2012.538.7612.06
As of 6/30/193 MOYTD1 YR3 YR5 YRSince Inception
(12/3/12)
BUFFALO DIVIDEND FOCUS FUND - Investor4.0615.418.4011.869.3412.55
BUFFALO DIVIDEND FOCUS FUND - Institutional4.1015.498.5612.039.5012.71
  Morningstar U.S. Large-Mid Cap Index4.3418.9310.3414.1910.4614.13
  S&P 500 Index4.3018.5410.4314.1910.7114.19
  Morningstar Large Blend Category3.8117.218.2012.538.7612.06

* 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.

As of July 27, 2018 the Morningstar U.S. Large-Mid Cap Index has replaced the S&P 500 Index as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

3 Year Risk Metrics
BUFDX vs Morningstar U.S. Large-Mid Cap Index (As of 6/30/19)
Upside Capture87.52
Downside Capture96.13
Alpha-0.78
Beta0.90
Sharpe Ratio0.94
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
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: September 17 | Payable Date: September 18

Record Date: December 17 | Payable Date: December 18


Portfolio

Portfolio Characteristics
(As of 6/30/19) 
 
# of Holdings83
Median Market Cap$91.45 B
Weighted Average Market Cap$246.26 B
3-Yr Annualized Turnover Ratio19.01%
% of Holdings with Free Cash Flow70.51%
30-day SEC Yield0.77%
Top 10 Holdings
HoldingTicker / MaturitySector% of Net
Assets
MicrosoftMSFTTechnology4.43%
VisaVFinancial Services3.47%
AppleAAPLTechnology2.98%
8x80.500%, 2/1/24Communications2.65%
The Walt Disney CoDISConsumer Discretionary2.29%
American Electric PowerAEPUtilities2.26%
AnthemANTMHealth Care2.11%
JPMorgan ChaseJPMFinancial Services1.91%
Bank of AmericaBACFinancial Services1.90%
Berkshire HathawayBRK/BFinancial Services1.87%
TOP 10 HOLDINGS TOTAL25.87%
As of 3/31/19. 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 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.

Market Capitalization

As of 6/30/19. 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 3/31/19) — Equity markets rebounded sharply to start 2019. The widely followed S&P 500 Index returned 13.65% in the 1st quarter, its best quarterly performance in 10 years. The market advance can be largely attributed to the Federal Reserve’s decision to put quarterly short term interest rate hikes on hold and end its balance sheet runoff. Additionally, prospects for a trade agreement between the U.S. and China appeared to improve, and the U.S. Government reopened after its longest shut down in history.

The Russell 3000 Index advanced 14.04% in the 1st quarter. Growth outperformed value, with the Russell 3000 Growth Index returning 16.18% compared to a return of 11.93% for the Russell 3000 Value. By size, midcaps led the way this quarter with the Russell Midcap Index returning 16.54%, followed by a return of 14.58% for the small cap Russell 2000 Index and 14.00% for the large cap Russell 1000 Index. Technology, Real Estate, and Industrials were the best performing sectors, while Health Care and Financials were relative underperformers.

PERFORMANCE COMMENTARY

(As of 3/31/19) — The Buffalo Dividend Focus Fund posted a return of 10.90%, underperforming the Morningstar U.S. Large-Mid Cap Index return of 13.99% and the S&P 500 Index return of 13.65%. Sector weightings and security selection hindered the Fund’s relative performance. The Fund’s highest weighted sectors (Financials, Health Care, and Information Technology) posted positive returns, however, they lagged returns relative to comparable index sectors. On the other hand, some of the Fund’s least weighted sectors (Energy, Real Estate, and Utilities – comprising less than 14% of Fund assets) had returns greater than the comparable index sectors.

Top Contributors
Specific securities that contributed most positively to performance included Microsoft, Visa, and Apple. Microsoft improved on growing momentum from its cloud services and enterprise products. Visa advanced on a favorable earnings release and healthy transaction volumes. Apple rose on positive earnings relative to expectations and prospects for continued growth in its services business.

Top Detractors
Specific securities that detracted from performance included CVS Health Corp., CME Group, and AbbVie Inc. CVS fell on weak earnings forecast due to rising costs, poor results from its Omnicare unit, and integration with its recent purchase of Aetna. CME Group dropped primarily due to lower trading volumes and reduced volatility levels. AbbVie declined on weaker than expected results and concerns regarding generic completion for its top selling drug (Humira).

OUTLOOK

(As of 3/31/19) — After experiencing consecutive quarters of double-digit markets moves (one negative and one positive), we expect the market to encounter continued volatility in the coming quarters, as the Federal Reserve has paused rate increases and future actions are expected to be data dependent. Other market concerns include inflation expectations, potential strengthening of the U.S. dollar, vagaries regarding protectionism efforts from the Administration, evolving geopolitical risks, slowing economic growth and prospects for a recession to develop, rising energy prices, and the divided Congress. Valuation metrics, while off recent highs, are still above historical market averages, leading us to believe the stock market may have a difficult time achieving further multiple expansion. On the other hand, prospective tailwinds for the economy include further job growth, wage increases, lower tax rates, and robust business and consumer confidence, all of which could lead to higher Gross Domestic Product (GDP) growth.

Despite the expectation of continued volatility, we remain focused on wide moat, large capitalization companies that are competitively advantaged and trading at reasonable valuations, in our view. If 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 1,205 for the 3-year period and 3 stars among 1,066 Large Blend funds for the 5-year period ending 6/30/19.

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:1.50%1.35%
Total Net Assets:$84.02 Million  (7/1/19)
Category:Small Cap Growth
Benchmark:Morningstar U.S. Small Growth
Related Material:
   Fund Fact Sheet Q2 2019
   PM Commentary Q1 2019
   Summary Prospectus
Recent Media Coverage

MarketWatch – Feb. 7, 2019

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 583 Small Growth funds as of 6/30/19.

Investment Style

Performance (%)

As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/21/04)
BUFFALO EMERGING OPPORTUNITIES FUND - Investor6.8024.836.5920.158.7717.038.808.94
BUFFALO EMERGING OPPORTUNITIES FUND - Institutional6.8424.926.7520.338.9317.218.969.10
  Morningstar U.S. Small Growth Index2.4722.383.4715.789.5014.849.099.54
  Russell 2000 Growth Index2.7520.36-0.4914.698.6314.418.909.37
  Morningstar Small Growth Category4.1221.823.2216.129.1814.478.978.69
As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/21/04)
BUFFALO EMERGING OPPORTUNITIES FUND - Investor6.8024.836.5920.158.7717.038.808.94
BUFFALO EMERGING OPPORTUNITIES FUND - Institutional6.8424.926.7520.338.9317.218.969.10
  Morningstar U.S. Small Growth Index2.4722.383.4715.789.5014.849.099.54
  Russell 2000 Growth Index2.7520.36-0.4914.698.6314.418.909.37
  Morningstar Small Growth Category4.1221.823.2216.129.1814.478.978.69

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.

As of July 27, 2018 the Morningstar U.S. Small Growth Index has replaced the Russell 2000 Growth Index as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

3 Year Risk Metrics
BUFOX vs Morningstar U.S. Small Growth Index (As of 6/30/19)
Upside Capture106.78
Downside Capture88.77
Alpha6.26
Beta0.84
Sharpe Ratio1.20
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 6/30/19) 
 
# of Holdings68
Median Market Cap$1.11 B
Weighted Average Market Cap$1.55 B
3-Yr Annualized Turnover Ratio49.74%
% of Holdings with Free Cash Flow50.00%
% of Holdings with No Net Debt48.53%
Active Share94.84%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
MimecastMIMETechnology2.86%
8x8EGHTCommunications2.76%
Kornit DigitalKRNTIndustrials2.62%
CyberArk SoftwareCYBRTechnology2.61%
Community Healthcare TrustCHCTReal Estate2.47%
EnvestnetENVTechnology2.37%
Hamilton LaneHLNEFinancials2.36%
Air Transport Services GroupATSGIndustrials2.23%
Wildan GroupWLDNIndustrials2.12%
Playa Hotels & ResortsPLYAConsumer Discretionary2.06%
TOP 10 HOLDINGS TOTAL24.46%
As of 3/31/19. 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 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.

Market Capitalization

As of 6/30/19. 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 3/31/19) — Equity markets rebounded sharply to start 2019. The widely followed S&P 500 Index returned 13.65% in the 1st quarter, its best quarterly performance in 10 years. The market advance can be largely attributed to the Federal Reserve’s decision to put quarterly short term interest rate hikes on hold and end its balance sheet runoff. Additionally, prospects for a trade agreement between the U.S. and China appeared to improve, and the U.S. Government reopened after its longest shut down in history.

The Russell 3000 Index advanced 14.04% in the 1st quarter. Growth outperformed value, with the Russell 3000 Growth Index returning 16.18% compared to a return of 11.93% for the Russell 3000 Value. By size, midcaps led the way this quarter with the Russell Midcap Index returning 16.54%, followed by a return of 14.58% for the small cap Russell 2000 Index and 14.00% for the large cap Russell 1000 Index. Technology, Real Estate, and Industrials were the best performing sectors, while Health Care and Financials were relative underperformers.

PERFORMANCE COMMENTARY

(As of 3/31/19) — quarter. This compares to the Morningstar U.S. Small Growth Index’s gain of 19.43%, and the Fund’s previous benchmark, the Russell 2000 Growth Index, which returned 17.14% in the quarter.

The strong start to the calendar year has erased most of the damage from the sell-off seen in the calendar 4th quarter of 2018. At the time of this writing in mid-April, the Russell 2000 Growth Index was within 9% of the all-time high reached in August of 2018. Additionally, the Russell 2000 Growth Index has rebounded 28% from its low watermark in December of 2018.

Every sector of the Morningstar U.S. Small Growth Index produced double-digit returns during the quarter except Consumer Staples. The largest index sectors by weight, Healthcare and Information Technology, saw gains of 19.42% and 22.52%, respectively.

Within the Fund, two leading contributors to returns in the 1st quarter were CyberArk and Mimecast. Both companies are involved in the growing need for solutions to combat the continuing sophistication and growing financial pain caused by cyberattacks on corporate networks. CyberArk is the top supplier focused on privileged access management, which provides protection from malicious attacks from insiders within an organization. While much of security spending by corporations over the years was on developing perimeter security for their information technology systems, most don’t have a solution in place to prevent insiders from accessing files that should be limited to certain users. This creates an attractive opportunity for CyberArk and first mover advantage as they typically do not have to unseat an incumbent solution provider when signing up new clients.

Mimecast is a leading email security provider that continued to take share from legacy email security providers through innovation and its cloud based solution. The company continued to release new add-on products to address phishing and archiving which has driven incremental revenue growth. Additionally, Mimecast has had success in serving small- and medium-size clients but continued to have success moving up market and signing larger corporate customers.

OUTLOOK

(As of 3/31/19) — The headlines that have driven the strong market bounce back this year continue to provide a supportive overall market backdrop. Resolution of some of the trade disputes could enable better global growth, and the Federal Reserve’s accommodative positioning towards monetary policy has been a stock market catalyst for the past nearly 10 years. With that said, our focus remains on finding early stage growth companies with the potential to benefit from secular trends and sustain growth due to the innovation and disruption they are introducing to an industry, regardless of the market’s overall backdrop and headlines.

The Buffalo Emerging Opportunities Fund is focused on identifying innovation among U.S. companies with North American revenue bases. We operate at the small end of the small capitalization spectrum and can uncover opportunities where we believe valuation dislocation is out of line with the actual results and outlook potential. As always, we pay close attention to the valuations of our holdings and will utilize market volatility to trim or add to our holdings as risk/reward profiles improve or degrade, in our view. 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 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 583 for the three-year, 3 stars among 515 for the five-year, and 4 stars among 393 Small Growth funds for the ten-year period ending 6/30/19.

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:$599.75 Million  (7/1/19)
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 Q2 2019
   PM Commentary Q1 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 317 Allocation — 70-85% Equity funds as of 6/30/19.

Investment Style

Performance (%)

As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND - Investor0.3712.253.807.584.609.427.037.16
BUFFALO FLEXIBLE INCOME FUND - Institutional0.4112.343.957.744.769.587.197.32
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
1.98
2.57
1.09
9.10
10.16
7.52
6.70
7.58
5.37
7.35
7.54
7.06
4.57
4.70
4.37
9.25
9.22
9.30
7.45
7.48
7.41
7.47
7.50
7.42
  BofA ML Combined Index
    S&P 500 Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
3.02
4.30
1.09
14.13
18.54
7.52
8.40
10.42
5.37
11.34
14.19
7.06
8.17
10.71
4.37
12.54
14.70
9.30
8.21
8.75
7.41
8.87
9.83
7.42
  Lipper Mixed-Asset Target Allocation Moderate Funds Index3.1511.796.257.685.048.455.816.90
  Morningstar Allocation -- 70-85% Equity Category2.8513.594.238.805.209.746.447.03
As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(8/12/94)
BUFFALO FLEXIBLE INCOME FUND - Investor0.3712.253.807.584.609.427.037.16
BUFFALO FLEXIBLE INCOME FUND - Institutional0.4112.343.957.744.769.587.197.32
  Combined Index
    Morningstar U.S. Large Cap Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
1.98
2.57
1.09
9.10
10.16
7.52
6.70
7.58
5.37
7.35
7.54
7.06
4.57
4.70
4.37
9.25
9.22
9.30
7.45
7.48
7.41
7.47
7.50
7.42
  BofA ML Combined Index
    S&P 500 Index (60%)
    ICE BofAML U.S. High Yield Index (40%)
3.02
4.30
1.09
14.13
18.54
7.52
8.40
10.42
5.37
11.34
14.19
7.06
8.17
10.71
4.37
12.54
14.70
9.30
8.21
8.75
7.41
8.87
9.83
7.42
  Lipper Mixed-Asset Target Allocation Moderate Funds Index3.1511.796.257.685.048.455.816.90
  Morningstar Allocation -- 70-85% Equity Category2.8513.594.238.805.209.746.447.03

* 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.

As of July 27, 2018 the 60% Morningstar U.S. Large Cap Index/40% ICE BofAML US High Yield Index has replaced the Bank of America Merrill Combined Index (60% S&P 500 Index/40% ICE BofAML US High Yield Index) as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

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: August 19 | Payable Date: August 20

Record Date: September 17 | Payable Date: September 18

Record Date: October 17 | Payable Date: October 18

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
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 6/30/19) 
 
# of Equity Holdings59
# of Fixed Holdings7
Median Market Cap$48.91 B
Weighted Average Market Cap$168.92 B
3-Yr Annualized Turnover Ratio3.78%
Average Duration2.13 years
Average Maturity5.21 years
30-day SEC Yield1.24%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
MicrosoftMSFTTechnology4.60%
BoeingBAIndustrials4.23%
Johnson & JohnsonJNJHealth Care2.94%
ChevronCVXEnergy2.88%
BB&TBBTFinancials2.63%
Procter & GamblePGConsumer Staples2.56%
BPBPEnergy2.56%
Coca-ColaKOConsumer Staples2.48%
IntelINTCTechnology2.45%
CloroxCLXConsumer Staples2.43%
TOP 10 HOLDINGS TOTAL29.76%
As of 3/31/19. 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 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.

Asset Allocation

As of 6/30/19. 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 3/31/19) — Equity markets rebounded sharply to start 2019. The widely followed S&P 500 Index returned 13.65% in the 1st quarter, its best quarterly performance in 10 years. The market advance can be largely attributed to the Federal Reserve’s decision to put quarterly short term interest rate hikes on hold and end its balance sheet runoff. Additionally, prospects for a trade agreement between the U.S. and China appeared to improve, and the U.S. Government reopened after its longest shut down in history.

The Russell 3000 Index advanced 14.04% in the 1st quarter. Growth outperformed value, with the Russell 3000 Growth Index returning 16.18% compared to a return of 11.93% for the Russell 3000 Value. By size, midcaps led the way this quarter with the Russell Midcap Index returning 16.54%, followed by a return of 14.58% for the small cap Russell 2000 Index and 14.00% for the large cap Russell 1000 Index. Technology, Real Estate, and Industrials were the best performing sectors, while Health Care and Financials were relative underperformers.

PERFORMANCE COMMENTARY

(As of 3/31/19) — The Buffalo Flexible Income Fund returned 11.84% for the quarter compared to the Fund’s primary benchmark (60% Morningstar U.S. Large Cap Index / 40% ICE BofAML U.S. High Yield Index) which produced a return of 10.85% during the period. For additional reference, the S&P 500 Index returned 13.65% for the period and the ICE BofAML U.S. High Yield Index returned 7.40%.

EQUITIES PERFORMANCE
For the quarter, the equity portion of the portfolio returned 12.96% vs. 13.65% for the S&P 500 Index. The Fund’s equity allocation is primarily focused on large cap, dividend-paying companies which we believe possess significant competitive advantages.

The primary sectors that led to slight relative underperformance during the period were Information Technology, Consumer Staples, and Consumer Discretionary. Technology was the best performing sector for period, and the Fund was underweight Technology when compared to the S&P 500 Index during the quarter. Security selection within Technology contributed to underperformance as the Fund was underweight Apple and Facebook – both stocks advanced over 20% during the quarter.

Meanwhile the underperformance in Consumer Staples was mostly due to security selection. Specific securities that detracted from performance included Coca-Cola and Clorox. Coca-Cola lowered earnings guidance for 2019 due to sluggish top line growth and higher costs. Clorox advanced during the period but not as much as the sector or the market overall, which negatively impacted relative performance.

The underperformance in the Consumer Discretionary sector was mostly due to security selection. Securities that negatively impacted performance with the sector were Lions Gate Entertainment, Amazon, and Netflix. Lions Gate’s stock price was essentially flat over the period, which negatively impacted relative performance when compared to the sector and broader market. Company management indicated the slate of films to be released in 2019 would be down, but that new releases should accelerate in 2020. In a bright note for the company, Starz continued to exceed expectations.
Overall the top contributors to the equity portfolio’s performance were Boeing, Microsoft, and Exxon Mobil while the top detractors were B&G Foods, Pfizer, and Lions Gate.

FIXED INCOME PERFORMANCE
The fixed income portion of the Buffalo Flexible Income Fund generated a return of 1.18% for the 1st quarter and underperformed the ICE BofAML U.S. High Yield Index return of 7.40%. The underperformance was primarily due to stock selection in the Energy sector. Approach Resources’ bonds declined significantly during the quarter as the company is faced with tight liquidity and potential fears over tripping a debt covenant due to weak underlying financial results.

The top contributors to the Fund’s fixed income portfolio included Nuance Communications 1.5% convertible bonds, Medicines Company, and Everi Payments, while the top detractors were Approach Resources, UTi Worldwide, and Nuance Communications 5.375% senior notes.

OUTLOOK

(As of 3/31/19) — We continue to be diligent in our process of seeking income-producing securities trading at reasonable valuations, by our analysis. Given that we believe the U.S. is in the later stages of the current economic cycle, we continue to find ourselves confronted with relatively low spread and yield levels with the non-investment grade fixed income asset class that we prefer over the long haul. This backdrop has resulted in a bond allocation that remains close to the low end of our range in terms of the Fund’s overall asset mix of stocks, bonds, and cash. Within the fixed income portion of the portfolio, we continue to focus on higher-quality, non-investment grade issuers with defensive business models and manageable credit metrics.

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 317 for the 3-year, 2 stars among 283 for the 5-year, and 3 stars among 200 Allocation 70-85% Equity funds for the 10-year period ending 6/30/19.

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:$177.20 Million  (7/1/19)
Category:Large Cap Growth
Benchmark:Morningstar U.S. Growth
Related Material:
   Fund Fact Sheet Q2 2019
   PM Commentary Q1 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 1,235 Large Growth funds as of 6/30/19.

Investment Style

Performance (%)

As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
BUFFALO GROWTH FUND - Investor6.8523.2012.2016.3311.1714.769.3410.36
BUFFALO GROWTH FUND - Institutional6.8923.2912.3616.5111.3414.939.5010.52
  Morningstar U.S. Growth Index5.1623.7411.3218.9513.2016.339.64-
  Russell 1000 Growth Index4.6421.4911.5618.0713.3916.289.909.44
  Lipper Large Cap Growth Fund Index4.7121.6811.0018.6712.4115.008.978.44
  Morningstar Large Growth Category4.6321.1110.0216.9711.3314.719.078.58
As of 6/30/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
BUFFALO GROWTH FUND - Investor6.8523.2012.2016.3311.1714.769.3410.36
BUFFALO GROWTH FUND - Institutional6.8923.2912.3616.5111.3414.939.5010.52
  Morningstar U.S. Growth Index5.1623.7411.3218.9513.2016.339.64-
  Russell 1000 Growth Index4.6421.4911.5618.0713.3916.289.909.44
  Lipper Large Cap Growth Fund Index4.7121.6811.0018.6712.4115.008.978.44
  Morningstar Large Growth Category4.6321.1110.0216.9711.3314.719.078.58

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.

As of July 27, 2018 the Morningstar U.S. Growth Index has replaced the Russell 1000 Growth Index as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.

3 Year Risk Metrics
BUFGX vs Morningstar U.S. Growth Index (As of 6/30/19)
Upside Capture86.20
Downside Capture91.81
Alpha-0.38
Beta0.89
Sharpe Ratio1.17
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 6/30/19) 
 
# of Holdings53
Median Market Cap$67.60 B
Weighted Average Market Cap$260.69 B
3-Yr Annualized Turnover Ratio20.39%
% of Holdings with Free Cash Flow86.79%
Active Share56.68%
Top 10 Holdings
Name of HoldingTickerSector% of Net
Assets
MicrosoftMSFTTechnology7.52%
AmazonAMZNConsumer Discretionary5.15%
FacebookFBTechnology3.09%
MastercardMAFinancials2.57%
Abbott LabsABTHealth Care2.56%
VisaVFinancials2.55%
The Walt Disney CoDISConsumer Discretionary2.45%
Home DepotHDConsumer Discretionary2.45%
AlphabetGOOGTechnology2.34%
AlphabetGOOGLTechnology2.32%
TOP 10 HOLDINGS TOTAL33.00%
As of 3/31/19. 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 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.

Market Capitalization

As of 6/30/19. 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 3/31/19) — Equity markets rebounded sharply to start 2019. The widely followed S&P 500 Index returned 13.65% in the 1st quarter, its best quarterly performance in 10 years. The market advance can be largely attributed to the Federal Reserve’s decision to put quarterly short term interest rate hikes on hold and end its balance sheet runoff. Additionally, prospects for a trade agreement between the U.S. and China appeared to improve, and the U.S. Government reopened after its longest shut down in history.

The Russell 3000 Index advanced 14.04% in the 1st quarter. Growth outperformed value, with the Russell 3000 Growth Index returning 16.18% compared to a return of 11.93% for the Russell 3000 Value. By size, midcaps led the way this quarter with the Russell Midcap Index returning 16.54%, followed by a return of 14.58% for the small cap Russell 2000 Index and 14.00% for the large cap Russell 1000 Index. Technology, Real Estate, and Industrials were the best performing sectors, while Health Care and Financials were relative underperformers.

PERFORMANCE COMMENTARY

(As of 3/31/19) — The Buffalo Growth Fund gained 15.30% during the 1st quarter, trailing the benchmark Morningstar U.S. Growth Index return of 17.67%. Stock selection within Financials, Health Care, and Consumer Discretionary weighed on relative performance during the period. Within Financials, the decrease in market volatility had a negative impact on futures volumes for CME Group and Intercontinental Exchange, two of the Fund’s holdings in the sector. As interest rates trended lower during the quarter, Financials that were beneficiaries to the housing markets rebounded, and this is an area where the Fund is underweight relative to the benchmark. Within Health Care, the Fund’s underweight in the biotechnology industry had a negative impact on relative results, as biotech was one of the strongest performing areas within the benchmark during the period.

TOP CONTRIBUTORS
Among the top contributors during the fourth quarter was Microsoft, Amazon, and Shopify. Microsoft continued to successfully transition itself from a software company into a cloud provider that can deliver a wide variety of platform-as-a-service and infrastructure-as-a-service solutions at scale. We believe the company has a long runway of double-digit revenue growth opportunities with margin expansion for several years.

Amazon has established itself as the default “go-to” e-commerce website in North America, generating nearly $280 billion of gross merchandise volume (GMV) during 2018. We believe the company’s dominance in e-commerce in the U.S. will continue to grow as it continues to build out its distribution and delivery infrastructure, while also growing its online advertising strategy.

Shopify (SHOP) was one of the best performers on an absolute basis as its shares gained 49.24% during the quarter. The company is a multichannel e-commerce platform that allows businesses or merchants to set up online stores to sell products. We believe the company will continue to be a key enabler of small businesses and entrepreneurs to take on legacy business models.

TOP DETRACTORS
The biggest detractors in the period were ABIOMED, Inc. and CME Group. ABIOMED was weak following a U.S. Food & Drug Administration (FDA) letter to doctors noting a higher mortality rate for ABIOMED’s Impella RP heart pump in a post-FDA approval study than what was seen in pre-approval studies. The Impella RP product is designed for use in specific clinical situations while the majority of patients in the post-approval study did not meet ABIOMED’s original enrollment criteria for treatment with the device. Both the FDA and ABIOMED suggest the Impella RP device’s efficacy was studied in a high-risk pool for which it was not well suited. The news introduced near-term uncertainty to a stock price that embeds high growth expectations but appears to be an over-reaction in the near term. Impella RP represents less than 5% of total company sales. The device, along with the rest of the ABIOMED product line, is highly efficacious when used as intended. We continue to think the company has a long runway for growth and market share gains within a $30 billion market.

CME Group’s shares were weak after futures volumes in the financial markets were lower than last year. The company benefits with higher volatility in markets, which are typically accommodated with rising interest rates. As the quarter progressed it became increasing unlikely that the Fed was in a position to raise short-term interest rates. While the company’s derivative product offerings are broader than just interest rate derivatives, the halt in the interest rate hikes decreased the volatility across multiple asset classes, negatively impacting the company’s volumes.

OUTLOOK

(As of 3/31/19) — We believe the current environment is typical of an aged expansionary period and may provide active managers with ample opportunities to capitalize on short-term overreactions, potentially benefiting long-term performance. With that in mind, the Fund continues to invest in high-quality growth stocks with relatively attractive valuations according to our internal analysis, which we believe could be a key driver of above-index risk-adjusted returns over the long term. 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 consumers and businesses. We don’t see a recession on the horizon nor a significant collapse in corporate earnings, but valuations are at lofty levels, especially for big secular growers. Earnings growth comparisons also get more difficult as we lap the positive effects of last year’s tax reform.

After a possible 1st quarter earnings reset, we suspect the backup in interest rates, a more dovish Federal Reserve stance toward monetary policy, and a trade deal with China could extend the positive market sentiment. With the significant 1st quarter market movement, we believe a volatile, more discerning market could materialize through 2019. Later in the 2nd half of 2019, market pundits may likely return their focus to the Fed’s interest rate normalization process, which may weigh on market multiples. 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.

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 1,235 for the 3-year, 3 stars among 1,100 for the 5-year, and 3 stars among 812 Large Growth funds for the 10-year period ending 6/30/19.

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.