Inception Date
  April 16, 2001

Total Fund Assets
  $1.90 Billion  (3/31/18)

Expense Ratio

Benchmark Index
  Russell Midcap Growth


Morningstar Analyst Rating™
(rated 4/27/18)

Overall Morningstar Rating™ out of 539 Midcap Growth funds as of 5/31/18 (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.




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 539 funds in the Mid-Cap Growth category, as of 5/31/18.


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


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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, and 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.

IBD Best Mutual Funds 2018

Investor’s Business Daily recently named the Buffalo Discovery Fund the #3 Midcap fund on the IBD Best Mutual Funds 2018 list.

The list recognizes funds that have outperformed the broad market over the past 1, 3, 5, and 10-year periods, as of 12/31/17, and have at least $100 million in assets — only 16 midcap funds made the list.


Performance (%)

As of 5/31/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
Buffalo Discovery Fund2.064.3416.8710.2414.7312.4112.649.40
  Russell Midcap Growth Index2.594.9918.429.9913.009.5811.158.86
  Morningstar Mid-Cap Growth3.605.8518.749.3411.958.6410.146.92
As of 3/31/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
Buffalo Discovery Fund1.241.2417.359.6214.5513.4414.409.30
  Russell Midcap Growth Index2.172.1719.749.1713.3110.6112.128.77
  Morningstar Mid-Cap Growth2.152.1518.348.2811.949.3911.026.77
YearBuffalo DiscoveryRussell Midcap Growth IndexMorningstar Mid-Cap Growth Category
(As of 3/31/18)

vs Russell Midcap Growth Index
Upside Capture93.14
Downside Capture86.38
Sharpe Ratio0.92

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 3/31/18)

# of Holdings85
Median Market Cap$13.84 B
Weighted Average Market Cap$46.45 B
3-Yr Annualized Turnover Ratio50.60%
% of Holdings with Free Cash Flow88.24%
% of Holdings with No Net Debt37.65%
Active Share80.86%
HoldingTickerSector% of Net Assets
Align TechnologyALGNHealth Care2.09%
MSCIMSCIFinancial Services1.81%
Verisk AnalyticsVRSKIndustrials1.68%
Intercontinental ExchangeICEFinancial Services1.66%
MasterCardMAFinancial Services1.64%
DanaherDHRHealth Care1.64%
View Full Holdings

As of 12/31/17. 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 3/31/18. 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 3/31/18. Market Cap percentages may not equal 100% due to rounding.


Commentary for Q1 2018   (As of 3/31/18)


(As of 3/31/18) — The long streak of low volatility and positive stock market returns ended in the 1st quarter of 2018. Strong gains in January were erased in February and March, leaving the S&P 500 Index down 0.76% for the quarter. Volatility as measured by the Cboe Volatility Index (VIX) was up about 80% in the 1st quarter after falling for the last three years. Investor worries about increasing interest rates, possible trade wars, and threatened government action against large technology companies, offset generally strong economic data and corporate earnings growth.

The Russell 3000 Index declined 0.64% in the quarter, and, broadly speaking, small cap companies outperformed large cap companies during the period. The Russell Microcap Index advanced 0.68% and the Russell 2000 Index finished the period nearly flat, edging down just 0.08%. Moving up the market cap spectrum, performance worsened – the Russell Mid Cap Index was down 0.46% and the larger cap Russell 1000 Index declined 0.69%. Growth outperformed value by a wide margin during the quarter as the Russell 3000 Growth Index advanced 1.48% compared to a decline of 2.82% for the Russell 3000 Value Index. Technology and Consumer Discretionary were the best performing sectors, while Consumer Staples and Energy were the worst performing.


(As of 3/31/18) — For the 1st quarter of 2018, the Buffalo Discovery Fund returned 1.24%, underperforming the Russell Midcap Growth Index which returned 2.17%. The Fund’s underperformance versus the benchmark was primarily driven by stock selection in our healthcare and industrial holdings. Sector allocation had limited impact on relative returns.

Top contributors in the period were Nevro, Zebra Technologies, and MSCI, Inc. Both Nevro and MSCI are top 5 holdings in the Fund.

Nevro developed and markets a device to treat lower back and leg pain. The Nevro device was determined to be superior to traditional devices in a well-designed clinical trial and consequently earned a superiority claim on its U.S. Food & Drug Administration (FDA) label. The device has had a strong launch, garnering about 15% market share in its first two years on the market in the United States. Recent strength in the launch led the stock to appreciate in the period.

Zebra had a better-than-expected quarter driven by its exposure to enterprise spending. Zebra’s enterprise segment includes products for mobile computing, data capture, radio-frequency identification, and related services and has benefited from the digitalization of work flow.

MSCI’s revenue and earnings growth accelerated, driven by the company’s highly profitable indexing business.

Top detractors in the period were Portola Pharmaceuticals, WageWorks, and FMC Corporation.

Portola has a drug under review with the FDA that is an antidote to commonly prescribed blood thinners (factor Xa inhibitors) in patients who present to the hospital with life threatening bleeds. We expect the drug to be approved in the next several months. However, during the quarter, some feedback company management shared from the FDA called this timeline into question for some investors, leading to a sell-off in the stock. We remain optimistic about the potential for FDA approval given the significant unmet need and strong clinical data.

WageWorks is a business services firm that provides comprehensive solutions for the management of employee benefits such as flexible spending accounts, health reimbursement accounts, and health savings accounts. The company’s stock declined during the period due to a delay in filing the 10-K as a result of a minor discreet revenue recognition issue in 2016. The fallout of this error is a shake-up of the executive management team. The Board of Directors will replace the CEO, CFO, and General Counsel. We believe the business fundamentals remain strong and the stock should recover over the next 9 to 12 months.

FMC Corporation sells lithium to battery manufactures. The price of lithium appreciated in 2017, and, as a result, lithium capacity was added by industry participants. Concerns about these capacity expansions led to a sell-off in FMC’s stock in the first quarter of 2018.


(As of 3/31/18) — We ended the quarter with 85 stocks in the Fund representing 84 companies, as we hold both the Class A and B shares of Lions Gate Entertainment. We exited 11 positions and added 10 stocks to the portfolio in the quarter. The cash position ended the period at about 5.5% of Fund assets.

Over the past 6 months, earnings growth expectations for companies within the S&P 500 have accelerated, from a 10% growth rate to an 18% growth rate for 2018, partially aided by the benefit from recent tax reform. As growth expectations have risen so have concerns related to inflation and rising interest rates, which has broadly strained sentiment in the bond proxy and rate sensitive sectors. In addition, companies experiencing downward earnings revisions in the face of tax reform, that has more generally provided a lift to corporate earnings, have not been well-received. Adding to this equation, rhetoric around trade wars has modestly impacted business confidence. These concerns led to increased market volatility in the 1st quarter of 2018. In February and March of 2018, U.S. equity markets gyrated up and down with no clear direction.

Yet we remain optimistic that this business cycle has legs. We expect inflation to remain tame and interest rates to rise at a measured pace. We are also optimistic that the current posturing related to international trade and tariffs will give way to a reasonable compromise, an outcome we believe is in the best interest of the disputing parties. As the dust settles on these concerns over the next several months, we expect U.S. equity markets to rise, driven by solid economic fundamentals.

In the meantime, the Buffalo Discovery Fund is capitalizing on the volatility, using the strength to trim or exit holdings in which we have modest expectations for risk adjusted returns, and using the pull backs to add to higher conviction stocks in which we believe will generate superior risk-adjusted returns.

Other market participants may also use the volatility to their advantage. Eight-plus years into economic expansion, and as a result of tax reform coupled with repatriation, corporations are flush with cash. We expect capital allocation in the form of merger and acquisition activity to increase in 2018.

Economic conditions may ebb and flow, but our focus remains steadfast on investing in attractively priced, financially strong, well-managed companies with innovative strategies, fueled by the Buffalo Secular Growth Trends. We believe this discipline could lead to superior returns over the intermediate to long term.

The opinions expressed are those of the Portfolio Manager(s) and are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security. 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 4 stars among 539 for the three-year, 5 stars among 480 for the five-year, and 5 stars among 343 Mid-Cap Growth funds for the ten-year period ending 5/31/18.

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.

©2018 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 Analyst Rating is not a credit or risk rating. It is a subjective evaluation performed by Morningstar’s manager research group, which consists of various Morningstar, Inc. subsidiaries (“Manager Research Group”). In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission. The Manager Research Group evaluates funds based on five key pillars, which are process, performance, people, parent, and price. The Manager Research Group uses this five pillar evaluation to determine how they believe funds are likely to perform relative to a benchmark, or in the case of exchange-traded funds and index mutual funds, a relevant peer group, over the long term on a risk-adjusted basis. They consider quantitative and qualitative factors in their research, and the weight of each pillar may vary. The Analyst Rating scale is Gold, Silver, Bronze, Neutral, and Negative. A Morningstar Analyst Rating of Gold, Silver, or Bronze reflects the Manager Research Group’s conviction in a fund’s prospects for outperformance. Analyst Ratings ultimately reflect the Manager Research Group’s overall assessment, are overseen by an Analyst Rating Committee, and are continuously monitored and reevaluated at least every 14 months.

For more detailed information about Morningstar’s Analyst Rating, including its methodology, please go to global.morningstar.com/managerdisclosures/.

The Morningstar Analyst Rating (i) should not be used as the sole basis in evaluating a fund, (ii) involves unknown risks and uncertainties which may cause Analyst expectations not to occur or to differ significantly from what they expected, and (iii) should not be considered an offer or solicitation to buy or sell the fund.

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.

While the U.S. News Mutual Fund Score combines all five equally weighted category scores to achieve its weighting, Lipper intends its measures to be used as individual assessments of a fund’s ability to meet specific goals, rather than as a cumulative measure of fund quality. Lipper rankings are comprised of five unique measures (Total Return, Consistent Return, Preservation, Expense, and Tax Efficiency), each with a 1-to-5 score, ranking each fund against its peers. The highest 20% of funds in each peer group are named Lipper Leaders, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1. The overall calculation is based on an equal-weighted average of percentile ranks for each measure over three-, five-, and ten-year periods (if applicable). Lipper Ratings for Total Return reflect funds’ historical total return performance relative to peers. Lipper Ratings for Consistent Return reflect funds’ historical risk-adjusted returns, relative to peers. Lipper Ratings for Preservation reflect funds’ historical loss avoidance relative to other funds within the same asset class. Lipper Ratings for Tax Efficiency reflect funds’ historical success in postponing taxable distributions relative to peers. Lipper Ratings for Expense reflect funds’ expense minimization relative to peers with similar load structures.

The Zacks Mutual Fund Rank ranks funds on a scale from 1 to 5, with 1 being a Strong Buy and 5 being a Strong Sell. Each quarter, Zacks updates their Mutual Fund Rank by evaluating the average Zacks Rank for the stocks owned by the fund and blending this with other criteria their studies show is beneficial in finding funds that will outperform in the future. In general, the higher the average Zacks Rank for the stocks in the fund, then the higher the Zacks Mutual Fund Rank.

TheStreet.com Ratings Investment Ratings for Funds condense the available fund performance and risk data into a single composite opinion of each fund’s risk-adjusted performance. “A (Buy) Excellent” rating means the fund has an excellent track record of maximizing performance while minimizing risk, thus delivering the best possible combination of total return on investment and reduced volatility. “B (Buy) Good” rating means the fund has a good track record of balancing performance with risk. “C (Hold) Fair” rating ratings means the fund has a track record which is about average. “D (Sell) Weak” rating means the fund has underperformed the universe of other funds given the level of risk in its underlying investments, resulting in a weak risk-adjusted performance. “E (Sell) Very Weak” rating means the fund has significantly underperformed most other funds given the level of risk in its underlying investments, resulting in a very weak risk-adjusted performance. The plus sign (+) is an indication that the fund is in the top third of its letter grade. The minus sign (-) is an indication that the fund is in the bottom third of its letter grade. “U Unrated” rating means the fund does not have sufficient history to make a reliable assessment of its risk-adjusted performance.

The CFRA Rankings range from five-star (highest) to one-star (lowest) and follow a normalized distribution curve, based upon the fund’s rank in its Category. Top 10% receive five stars, next 20% receive four stars, middle 40% receive three stars, next 20% receive two stars, and the bottom 10% receive one star. Rankings are refreshed on a weekly basis to incorporate the latest inputs from the holdings-based analysis and the latest relative performance review.