Inception Date
  April 16, 2001

Total Fund Assets
  $1.54 Billion  (9/30/17)

Expense Ratio

Benchmark Index
  Russell Midcap Growth


Overall Morningstar Rating™ out of 557 Midcap Growth funds as of 10/31/17 (derived from a weighted average of the fund’s 3-, 5-, and 10-year risk adjusted return measure).


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.



Low High

The Morningstar Risk vs Category™ rating is an assessment of the variations in a fund’s monthly returns, with an emphasis on downside variations, in comparison to the 557 funds in the Mid-Cap Growth category, as of 10/31/17.


Discovery Fund Webcast – September 2017

During this webcast, we covered:
• How innovative companies can lead to above average growth
• Key objectives of the Fund and their impact on current performance
• Our proprietary portfolio management process
• Fund performance YTD


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

~ Dave Carlsen, Portfolio Manager


The investment objective of the Buffalo Discovery Fund is long-term growth of capital. The Fund primarily invests in equity securities, consisting of domestic common stock, preferred stock, convertible securities, which may increase in value due to the development, advancement or commercial application of innovative strategies. 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.

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 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.

View our recent webcast

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Performance (%)

As of 10/31/173 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
Buffalo Discovery Fund5.0022.6225.4812.2516.7910.1114.089.32
  Russell Midcap Growth Index6.4520.5726.259.9815.348.2311.778.61
  Morningstar Mid-Cap Growth5.6019.8426.068.9413.666.8110.406.59
As of 9/30/173 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
Buffalo Discovery Fund5.7120.1019.5912.3014.9010.1815.219.23
  Russell Midcap Growth Index5.2817.2917.829.9614.188.2012.128.47
  Morningstar Mid-Cap Growth4.6316.8418.189.1312.626.9210.606.47
YearBuffalo Discovery Russell Midcap Growth IndexMorningstar Mid-Cap Growth Category
(As of 9/30/17)

vs Russell Midcap Growth Index
Upside Capture98.89
Downside Capture78.60
Sharpe Ratio1.17

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.

Growth of $10k

This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund on the Inception Date. Assumes reinvestment of dividends and capital gains. This chart does not imply future performance.


(As of 9/30/17)

# of Holdings86
Median Market Cap$10.58 B
Weighted Average Market Cap$53.53 B
3-Yr Annualized Turnover Ratio51.28%
% of Holdings with Free Cash Flow84.88%
% of Holdings with No Net Debt36.05%
Active Share86.51%
HoldingTickerSector% of Net Assets
Align TechnologyALGNHealth Care2.26%
DanaherDHRHealth Care1.75%
Verisk AnalyticsVRSKIndustrials1.73%
MSCIMSCIFinancial Services1.72%
Intercontinental ExchangeICEFinancial Services1.72%
WABCOWBCConsumer Discretionary1.69%
NevroNVROHealth Care1.68%
View Full Holdings

As of 6/30/17. Top 10 Holdings for the quarter are not disclosed until 60 days after quarter end. Those listed are for the previous quarter. Fund holdings are subject to change and are not recommendations to buy or sell any securities.

Buffalo publishes this listing of securities held as of the most recent calendar-quarter end, with a 30 or 60 day lag depending on the portfolio. Buffalo may exclude any portion of holdings from publication when deemed in the best interest of the portfolio.

The portfolio data and its presentation here may differ from the complete schedules of investments in regulatory filings due to differing accounting and reporting requirements.

As of 6/30/17. 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.

As of 6/30/17. Market Cap percentages may not equal 100% due to rounding.


Equity markets continued their winning streak in the 3rd quarter of 2017 with the S&P 500 Index posting its 8th consecutive quarterly gain. Investors have been encouraged by the synchronized upswing in global economic growth. For the first time since 2007, all 45 countries tracked by the Organization for Economic Cooperation and Development (OECD) are on pace to grow this year, with the growth rates expected to accelerate in 33 of those countries. This economic backdrop, in conjunction with strong corporate earnings and a renewed focus on tax reform, helped the reflation trade regain momentum in the quarter.

The reflation trade, also known as the “Trump trade” pushed shares of banks, industrials, and smaller companies higher while expectations of another interest rate increase by the Federal Reserve drove relative weakness in Treasury bonds and their stock market proxies, such as utility companies. The U.S. dollar also strengthened during the period against most major foreign currencies. Furthermore, strong demand and slowing production of oil in the U.S. drove West Texas Intermediate crude prices up 12.2% in the period.

The Russell 3000 Index, a broad market performance benchmark, produced a total return of 4.57% during the quarter. Growth stocks outperformed value stocks, as the Russell 3000 Growth Index advanced 5.93%, compared to a gain of 3.27% for the Russell 3000 Value Index. Shares of smaller-capitalized companies generally outperformed larger companies during the quarter. The Russell Microcap Index and the smaller-cap Russell 2000 Index climbed 6.65% and 5.67% respectively during the period, while the Russell Midcap Index advanced by 3.47%, and the larger-cap Russell 1000 Index increased by 4.48%. Technology and energy were the best performing sectors, while consumer staples and consumer discretionary sectors lagged.


The Buffalo Discovery Fund returned 5.71% in the quarter outperforming the Russell Mid Cap Growth Index which advanced 5.28%. Stock selection within the consumer discretionary and healthcare sectors drove the outperformance for the period.

Top contributors in the period were Dynavax Technologies, Align Technology, and Take Two Interactive. Dynavax has an innovative vaccine for preventing Hepatitis B infection in adults, delivering better protection with fewer injections than currently approved Hepatitis B vaccines. The FDA Advisory Panel met in July to discuss the potential approval of the vaccine and overwhelming endorsed the efficacy and safety of the product. Dynavax’s stock rose meaningfully in the wake of the meeting.

Meanwhile, Align Technology, the maker of the clear aligners for dental malocclusion and a long term holding in the Fund, continued to grow in excess of expectations. We believe that the current growth rate is sustainable over the intermediate to long term as less than 10% of the orthodontic market has converted from metal braces to clear aligners.

Finally, Take Two Interactive beat earnings expectations the past two quarters as in-game digital sales exceeded expectations. These digital sales carry a higher gross margin than packaged games and have driven profitability and cash generation for the firm. In addition, the company plans to launch Red Dead Redemption 2 in calendar 2018, the first major update to this title since 2011. Expectations for sales of this new release are high with overall company profitability expected to nearly double in the first year post launch.

Top detractors in the period were Chipotle Mexican Grill, Under Armour, and Evolent Health. Chipotle Mexican Grill saw decelerating same-store sales growth over the last two quarters, and efforts to jumpstart growth have fallen short. The near-term operating performance is likely to remain challenged. Nevertheless, we believe the company is a leader in the fast casual space, and with better leadership, can resume its growth trajectory.

Under Armour also declined in the period. For the five years leading up to 2017, the company experienced hyper-growth. Such growth is hard to sustain, and most recently management lost sight of some important drivers of the business, including product quality, the fashion trend, channel conflict, and encroaching competition. A high quality Chief Operating Officer, Patrik Frisk, was added to the executive team in late June. The turnaround will take some time, but we continue to believe the category has positive underlying long-term growth trends, namely the increasing consumer focus on healthy living and active lifestyles.

Finally, Evolent Health offers software tools and services to healthcare providers to manage populations of patients, with a goal of decreasing the cost of care, while maintaining or improving the quality of care. The end-market demand for Evolent’s service is strong. Nevertheless, the potential repeal of the Affordable Care Act has left many providers cautious on executing new contracts and are awaiting greater visibility. Consequently, investors were concerned about the company’s near-term growth prospects, leading to a sell-off in the stock. We remain optimistic that the strong management team will navigate the near-term uncertainty and are confident of the long-term opportunity for the company in enabling providers to manage risk.


The Fund ended the 3rd quarter of 2017 with 86 stocks representing 85 companies, as we hold both the Class A and Class B shares of Lions Gate Entertainment. We exited seven positions and added seven stocks to the Fund during the period. The cash weighting stood at about 3% of fund assets at the end of the quarter.

U.S. economic growth accelerated in the 2nd quarter with U.S. Real Growth Domestic Product (GDP) growing 3.1%. Recent measures of manufacturing and industrial activity in the U.S. support expanded activity in the 3rd quarter of 2017, consumer confidence is high, and unemployment reached a multi-year low of 4.2% in September. Companies who have beaten earnings expectations and lack controversy have predominately seen their stocks appreciate as investors appear to be chasing the outperformers.

Our discipline requires we trim or exit the winners as valuation exceeds our best case scenarios. While we see ample opportunities to deploy capital in companies trading at attractive valuations, frequently those valuations come with some controversy. And just as investors are bidding up the outperformers, they are also driving down the stock prices and the valuations of the underperformers.

Fortunately, with fear comes opportunity. We are acutely aware of the current market dynamic and seizing opportunities. We are willing to accept some near-term uncertainty in favor of the long-term growth opportunity. Furthermore, we believe the valuation disparity between winners and losers is extended. With economic growth accelerating, the equity market strength is likely to broaden in the relatively near term. As this occurs, we believe investors will rotate capital into companies that have underperformed recently, but have a growth opportunity and an attractive valuation.

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. Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Earnings growth is not representative of the fund’s future performance.

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.

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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 received 5 stars among 557 for the three-year, 5 stars among 480 for the five-year, and 5 stars among 360 Mid-Cap Growth funds for the ten-year period ending 10/31/17.

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.

©2017 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.