Quick Facts
Inception Date:4/16/2001
Total Net Assets:$2.14 Billion  (9/30/18)
Expense Ratio:1.02%
Category:Mid Cap Growth
Benchmark:Morningstar U.S. Mid Growth
Related Material:
   Fund Fact Sheet Q3 2018
   PM Commentary Q3 2018
   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

Morningstar Rating


Overall Morningstar Rating™ based on risk-adjusted returns among 542 Midcap Growth funds as of 11/30/18.

Investment Style


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.

Clay Brethour, Portfolio Manager

Performance (%)

As of 11/30/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
BUFFALO DISCOVERY FUND-8.911.781.259.8710.3217.7910.598.97
Morningstar U.S. Mid Growth Index-9.626.306.6511.329.9915.859.847.58
Russell Midcap Growth Index-8.004.755.3211.2410.1716.649.758.58
Morningstar Mid-Cap Growth Category-9.193.614.0910.058.5114.698.726.58
As of 9/30/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
BUFFALO DISCOVERY FUND5.6610.9415.8715.5813.0815.1112.189.60
Morningstar U.S. Mid Growth Index7.8617.0324.7617.0712.8512.8311.288.25
Russell Midcap Growth Index7.5713.3821.1016.6513.0013.4611.109.16
Morningstar Mid-Cap Growth Category6.4813.4220.3115.8111.6811.9710.147.20

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
vs Morningstar U.S. Mid Growth Index (As of 9/30/18)
Upside Capture88.28
Downside Capture86.51
Sharpe Ratio1.60
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 9/30/18) 
# of Holdings91
Median Market Cap$15.55 B
Weighted Average Market Cap$52.80 B
3-Yr Annualized Turnover Ratio50.28%
% of Holdings with Free Cash Flow92.31%
Active Share76.85%
Top 10 Holdings
HoldingTickerSector% of Net
Align TechnologyALGNHealth Care2.07%
AthenaHealthATHNHealth Care1.85%
Mylan N VMYLHealth Care1.79%
NasdaqNDAQFinancial Services1.75%
S&P GlobalSPGIFinancial Services1.70%
Verisk AnalyticsVRSKIndustrials1.63%
Roper TechnologiesROPIndustrials1.63%
MSCIMSCIFinancial Services1.61%
AmazonAMZNConsumer Discretionary1.57%
As of 6/30/18. 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.
Sector Weighting

As of 9/30/18. 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.

Market Capitalization

As of 9/30/18. Market Cap percentages may not equal 100% due to rounding.


Clay Brethour, CFA
Portfolio Manager

26 Years of Experience

 View full bio

Dave Carlsen, CFA
Portfolio Manager

26 Years of Experience

 View full bio



(As of 9/30/18) — U.S. economic strength and solid corporate earnings growth drove healthy equity returns in the 3rd quarter. The widely-followed S&P 500 Index had a total return of 7.71%, its best quarterly gain since 2013. In September, initial jobless claims fell to the lowest level since 1969, wages grew at the fastest rate since 2009, consumer confidence reached the highest level since 2000, and the National Federation of Independent Business (NFIB) survey of small business optimism was at an all-time high (the survey dates back to 1974). Against this strong economic backdrop, the Federal Reserve raised the targeted federal funds rate by another 25 basis points to a range of 2.00% to 2.25%. Slowly rising interest rates led to flat bond returns.

The divergence between domestic and international equity market performance continued during the quarter, with the MSCI EAFE Index advancing just 1.35%. The Russell 3000 Index gained 7.12% in the 3rd quarter. By style, growth continued to outperform value, with the Russell 3000 Growth Index increasing 8.88% compared to the Russell 3000 Value Index’s advance of 5.39%. Large caps did better than small caps as the Russell 1000 Index returned 7.42%, the Russell Midcap Index returned 5.00%, and the Russell 2000 Index returned 3.58% in the quarter. Every economic sector was positive this quarter, with Health Care and Industrials the top performers, while Materials and Energy lagged the indexes.


(As of 9/30/18) — The Buffalo Discovery Fund gained 5.66% during the quarter, trailing the benchmark Morningstar U.S. Mid Growth Index return of 7.86%. Weak stock selection within Health Care, Consumer Discretionary, and Information Technology sectors weighed on performance during the period. While Health Care was the best performing benchmark sector during the quarter we experienced two stock specific setbacks (Portola Pharmaceuticals and Nevro Corp.) which negatively influenced near term results.

Our investments related to the housing industry were negatively impacted by increasing interest rates and a slowing housing market, while our holdings with automotive exposure struggled due to trade tensions that weighed negatively on the automotive supply chain. Elsewhere, positive stock selection in Materials and a significant underweight in Energy, both poorly performing benchmark sectors, were positive offsetting factors during the quarter. The Fund continues to invest in high-quality growth stocks with relatively attractive valuations, which we believe should be a key driver of above-index risk-adjusted returns over the long term.

Bio-Techne Corporation shares increased 38% during the quarter and was the biggest contributor to the Fund’s return. Bio-Techne reported better-than-expected revenue growth, and made two acquisitions that should allow the company to be well-positioned within the research, diagnostics, and therapy of the fast-growing liquid biopsy market for oncology.

Illumina Inc. was another strong performer during the quarter. While the company has historically been known as the leading genetic sequencing provider for clinical research, its technology is increasingy being used in clinical diagnostics. In addition to the emerging clinical diagnostic opportunity, Illumina continues to benefit from two additional tailwinds to its business; a strong new product cycle and a favorable funding environment for its products.

Detracting from performance was Portola Pharmaceuticals, which declined 29% during the quarter. The company’s shares sold off after lowering investor expectations for sales of its drug Bevyxxa for the treatment of thrombosis. The near-term outlook for another of the company’s drugs Andexxa (for treatment of uncontrolled bleeding) remains stronger but the company has to overcome recent execution challenges to rerate higher.

Another underperformer was Nevro Corp. whose shares experienced intra-quarter price volatility and a steep decline due to heightened patent litigation with a competitor and a disappointing sales forecast caused by ongoing sales force attrition and productivity issues. The patents have since been upheld, demonstrating product viability but leaving the ongoing sales execution issue a multi-quarter fix.


(As of 9/30/18) — The market environment for equities remains favorable. Interest rates, inflation, and unemployment remain low, while corporate earnings grind higher buoyed by improving consumer confidence and recent U.S. corporate tax reform. Growing cash flows combined with foreign cash repatriation should drive improved business investment and more aggressive capital allocation activity including mergers and acquisitions (M&A), buybacks, and dividend increases.

As the U.S. economy continues to strengthen amid a tighter labor market, it could put upward pressure on further rate increases, as the Fed continues its interest rate normalization process after many years of easy money policies. A more restrictive monetary policy could introduce increased volatility. Additional uncertainty could be driven by other factors including: (i) the upcoming midterm elections in November and possible Democratic gains in the Congress; (ii) the ultimate outcome of the trade disputes and the impact it will have on earnings of U.S.-based companies expanding internationally; (iii) the fact that many stocks are trading at elevated valuations after the multi-year bull market.

Economic conditions may ebb and flow. However, our focus for the Discovery Fund is on discovering leading innovative companies with underappreciated growth prospects that are potential beneficiaries of our proprietary long-term secular growth trends, ones we believe should provide a tailwind to the companies’ operations regardless of the state of the economy. Additionally, we remain disciplined in seeking attractively-priced, financially-strong, and well-managed companies through our internal investment research efforts.

As volatility picks up, a steady hand and active management with an eye toward quality and relatively-attractive risk-adjusted returns could hold an advantage over passive money strategies. We stand poised to capitalize where we see near term stock price volatility that presents an opportunity to improve risk-adjusted expected returns within the portfolio.

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.


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 received 3 stars among 542 for the three-year, 4 stars among 490 for the five-year, and 5 stars among 341 Mid-Cap Growth funds for the ten-year period ending 11/30/18.

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 Style Box™ reveals a fund’s investment strategy by showing its investment style and market capitalization based on the fund’s portfolio holdings.