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
The Discovery Fund was started in 2001. It’s a fund that not only uses all the Buffalo long term secular growth trends but overlays an innovation focus to find companies that are implementing technology into their business models to capture growth from the existing marketplace.
Dave Carlsen and I have been working on this fund since 2004. There’s a lot of collaboration on the ideas that go into this particular fund.
As with all the funds here at Buffalo, we tend to focus on our long term secular growth trends which primarily means we don’t manage to a benchmark. We tend to be benchmark agnostic. And so we build our portfolios based on our 26 long term secular growth trends.
Our focus on innovation and long term trends establishes our growth universe. Thereafter it’s stock picking and fundamental analysis with an emphasis on attractive risk reward, competitive advantage, and a management team that can transform the secular opportunity into value for the shareholders.
We found that our focus on innovation is one of the best ways to hitch our wagon to share gainers and market disrupters while avoiding market maturation and obsolescence.
With the rapid pace of innovation being incorporated into the economy, we’re seeing a lot of these emerging players taking market share away from the legacy players that have been slow to implement technology into their business models. And therefore most of the companies that we have in the portfolio are small to mid-cap range.
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 that is embraced in the market and accepted and creates shareholder value.
Technology has come down to a price point, it’s being incorporated in all spectrum of industries, whether it’s industrial, financial, consumer, healthcare, and information technology. All those sectors are incorporating technology within their business practices to be able to make their businesses run more efficiently and stronger.
The fund still has a lot of capacity to continue to grow. It’s a fund that is truly exciting at this point in the economy as consumers continue to embrace more of a digital life. It’s really exciting to have shareholders come with us to participate in this growth.
We get to know the companies we invest in and learn how they run their business.
Top-Down & Bottom-Up
We identify Top-Down broad, secular growth trends and search for companies from the Bottom-Up.
We construct our portfolios based on our own proprietary investment strategy.
Sticking to our disciplined investment strategy ensures we maintain a consistent, balanced approach.