Quick Facts
Inception Date:4/16/20017/1/2019
Expense Ratio:1.02%0.87%
Total Net Assets:$1.78 Billion  (3/31/21)
Category:Mid Cap Growth
Benchmark:Morningstar U.S. Mid Growth
Related Material:
   Fund Fact Sheet Q4 2020
   PM Commentary Q4 2020
   Summary Prospectus

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.


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.

Dave Carlsen, CFA, Co-Portfolio Manager

Morningstar Rating


Overall Morningstar Rating™ of BUFTX based on risk-adjusted returns among 560 Midcap Growth funds as of 3/31/21.

Investment Style

Performance (%)

As of 3/31/213 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
BUFFALO DISCOVERY FUND - Investor2.702.7067.4918.6417.8614.8212.0310.66
BUFFALO DISCOVERY FUND - Institutional2.762.7667.7518.8318.0515.0012.2010.83
Morningstar U.S. Mid Growth Index-1.62-1.6273.2622.3720.5914.3211.169.80
Morningstar Mid-Cap Growth Category3.963.9681.9520.2919.1613.3810.478.62
As of 3/31/213 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
BUFFALO DISCOVERY FUND - Investor2.702.7067.4918.6417.8614.8212.0310.66
BUFFALO DISCOVERY FUND - Institutional2.762.7667.7518.8318.0515.0012.2010.83
Morningstar U.S. Mid Growth Index-1.62-1.6273.2622.3720.5914.3211.169.80
Morningstar Mid-Cap Growth Category3.963.9681.9520.2919.1613.3810.478.62
For performance prior to 7/1/19 (Inception Date of Institutional Class), performance of the Investor Class shares is used and includes expenses not applicable and lower than those of Investor Class shares. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower of higher than the performance quoted and can be obtained here. Performance is annualized for periods greater than 1 year. Each Morningstar category average represents a universe of funds with similar objectives.
3 Year Risk Metrics
BUFTX vs Morningstar U.S. Mid Growth Index (As of 12/31/20)
Upside Capture74.54
Downside Capture94.46
Sharpe Ratio0.84
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 Characteristics
(As of 12/31/20) 
# of Holdings89
Median Market Cap$17.68 B
Weighted Average Market Cap$22.81 B
3-Yr Annualized Turnover Ratio95.77%
% of Holdings with Free Cash Flow75.28%
Active Share74.67%
Top 10 Holdings
HoldingTickerSector% of Net
Penn National GamingPENNConsumer Discretionary2.26%
IHS MarkitINFOIndustrials1.73%
CoStar GroupCSGPReal Estate1.67%
Kansas City SouthernKSUIndustrials1.62%
Take-Two InteractiveTTWOCommunications1.58%
Generac HoldingsGNRCIndustrials1.53%
As of 9/30/20. 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 12/31/20. 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 12/31/20. Market Cap percentages may not equal 100% due to rounding.


Dave Carlsen, CFA
Portfolio Manager

29 Years of Experience

 View full bio

Jamie Cuellar, CFA
Portfolio Manager

29 Years of Experience

 View full bio

Ken Laudan
Portfolio Manager

28 Years of Experience

 View full bio

  Click here to read about the recent portfolio manager changes for the Buffalo Discovery Fund.



(As of 12/31/20) — Equity markets extended their rally in the 4th quarter, with the S&P 500 Index returning 12.15%. This capped the end to a historic year in which the S&P advanced 18.40% despite the world suffering through a global pandemic. The biggest news in the quarter was the U.S. Food and Drug Administration’s (FDA) approval of two separate vaccines, following very encouraging clinical results. This helped investors look beyond worsening COVID-19 trends and provided hope that an end to the pandemic could be in sight.

The Russell 3000 Index increased 14.68% in the quarter. Value stocks led the advance, as the Russell 3000 Value Index advanced 17.21% compared to the Russell 3000 Growth Index return of 12.41% during the period. Relative performance was inversely correlated by market cap in the quarter (i.e., small caps outperformed big caps). The Russell 1000 Index delivered a return of 13.69% compared to the Russell Mid Cap Index return of 19.91%. Smaller market cap indexes surged even more as the Russell 2000 Index returned 31.37% and the Russell Micro Cap Index returned 31.39%. Cyclically-sensitive sectors such as Energy, Financials, Industrials, and Materials performed best in the quarter. The more defensive areas like Telecom Services, Consumer Staples, Utilities, and Healthcare lagged. All sectors produced positive absolute results.


(As of 12/31/20) — Producing a return of 19.63%, the Buffalo Discovery Fund (BUFTX) ended the 4th quarter 25 basis points ahead of the Morningstar U.S. Mid Growth Index, which rose 19.38%. The Fund finished the calendar year with a return of 33.81%, a result that ranked in the top half of the Morningstar Mid-Cap Growth Category, but trailed the surging index return of 46.17%. The primary reason for the shortfall compared to the benchmark in 2020 was a portfolio underweight to high growth software companies, which we believe are largely overvalued and over-owned.

There are a myriad of variables that can affect investment performance over a quarter, and the COVID-19 global pandemic, as it did much over 2020, continued to impact the investing environment. As a result, there are accelerating economic trends that are driving new opportunities across the growth universe. Our Fund successfully navigated and leveraged several of these accelerating force changes in the 4th quarter of 2020, helping enable the outperformance.

For instance, as we discuss in more detail in the Top Contributors section, our top three contributing stocks benefited from the ongoing thrust for cloud-based enterprise software, video streaming, and remote online marketplace for outsourced job opportunities.

While stock selection was the primary driver of relative performance during the quarter, two over-arching factors were headwinds: (i) the relative underweight of the Information Technology sector (see comments below) and (ii) stock selection in Financials, although up 13%, underperformed the relative sector benchmark returns.


Upwork, the leading digital marketplace for outsourced job or “gig opportunities”, was our largest positive contributor in the quarter, posting a 98% return. Performance was mostly a result of positive quarterly earnings and heightened confidence in the longer-term revenue growth outlook of nearly 20%.

Cardlytics, a digital marketing firm, was another standout performer, as a beneficiary of the ongoing thrust to digital financial transactions, coupled with reinvigorated marketing campaigns by both existing and new customers.

8×8, a leading cloud-based “all in one” communications platform for video, voice, and chat, performed well, following the hiring of a highly-regarded new CEO who helped to re-rate the stock’s valuation more in-line with peers in the enterprise software sector.


Bandwidth was our largest detractor in the 4th quarter, declining 11% in the period, owing mostly to rotation away from the more defensive sectors and beneficiaries of the work-from-home toward re-opening centric investments. Nothing in the structural fundamentals drove the underperformance, in our opinion.

eHealth, an online health insurance broker, was down 10% in the quarter as there was some ongoing noise in quarterly results with customer churn. We believe the company will show improvement in their churn metrics as we progress throughout 2021, and, as a leading provider of Medicare policies delivered online, the valuation has the potential to re-rate higher once they do so.

SBC Communications, a wireless tower leasing company in the Real Estate sector, experienced some investor rotation out of its predictable, stable growth towers business into more macro and interest rate sensitive areas of the market, as optimism grew for COVID-19 vaccines and more fiscal stimulus. Churn resulting from the merger of Sprint and T-Mobile may weigh on leasing growth in the first half of 2021 while we wait for more significant 5G and C-band deployments in the 2nd half of the year. We continue to like the long-term growth prospects of the tower business, driven by expanding 5G and rural coverage, new spectrum deployments, more tenants per tower, and growth in mobile devices.


(As of 12/31/20) — Although political tensions remain high as we enter 2021, most of the political uncertainty has now abated. Coupled with two different COVID-19 vaccines approved, the so-called COVID-19 “worst-case scenario” is ostensibly off the table.

We see the 1st half of 2021 quite wobbly from an economic perspective, with the 2nd half of the year weathering the COVID-19 pandemic more effectively, becoming a better proxy of a more typical economic recovery. Accordingly, we see some risks to projected revenue and earnings broadly in the 1st half of the year and particularly the 1st quarter of 2021. It does seem Wall Street is starting to gain a sense of this with some estimates starting to come down.

Our more optimistic 2nd half economic outlook is predicated on the vaccine rollout gaining more traction and efficiency the next 90 days than it has over the initial 45. Only a tad over 5.5 million individuals have received their first injection as of January 6. The goal is clear; we must get to at least 100 million fully-vaccinated individuals by June 1 to put the country on a trajectory of a more normalized second half of ’21. An unappreciated factor, in our opinion, in achieving this will the upcoming single injection COVID-19 phase 3 vaccine data from Johnson & Johnson, expected later this month.

We also will monitor to see how patchy the economic recovery will be in the U.S. as indications of a slowing economy are already appearing. Private sector employment data for December 2020 released from ADP on January 6th showed a 123,000 decrease in employment versus an estimate of an increase of 45,000.

In the meantime, it certainly seems the U.S. Federal Reserve will remain committed to the lower bound on interest rates while supporting increased monetary stimulus when they see the need. It bears pointing out the yield on the 10-year Treasury Bond is now above 1%, and implied inflations expectations are 2%, so we’ll keep a cautious eye on the various leading indicators of reflation, as any sustained acceleration would have implications for equity valuations.

In closing, one of the most important aspects of generating long-term, top-tier outperformance as an equity growth manager is to have both the conviction and consistency to lean in on those investments where we fully understand the fundamentals and where we are able to recognize a disconnect or misperception by the market. In our view, finding that disconnect and misperception was more difficult in 2020. In 2021, it is certainly possible there will be some regime change in growth stock investing as the economy, valuation levels, and other risks wax and wane. Notwithstanding, the average growth stock investment experience on the Buffalo Discovery Fund team of 29 years, supported by a well-defined process, gives us confidence we’ll continue to generate returns which benefit our shareholders.

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.

7 Buffalo Funds Named to IBD Best Mutual Funds 2021 List

Seven Buffalo Funds were named to Investor’s Business Daily Best Mutual Funds 2021 list, including the Best U.S. Diversified, Growth, Large Cap, Mid Cap, Small Cap, International, and U.S. Taxable Bond Fund categories.


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Fundamental Approach

We get to know the companies we invest in and learn how they run their business.

Top-Down & Bottom-Up

We identify Top-Down broad, secular growth trends and search for companies from the Bottom-Up.

Proprietary Philosophy

We construct our portfolios based on our own proprietary investment strategy.

Disciplined Investing

Sticking to our disciplined investment strategy ensures we maintain a consistent, balanced approach.

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating™ for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating™ metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The Buffalo Discovery Fund (BUFTX) received 3 stars among 560 for the 3-year, 3 stars among 500 for the 5-year, and 4 stars among 379 Mid-Cap Growth funds for the 10-year period ending 3/31/21.

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. ©2021 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.