Quick Facts
Inception Date:4/16/2001
Total Net Assets:$1.63 Billion  (12/31/18)
Expense Ratio:1.02%
Category:Mid Cap Growth
Benchmark:Morningstar U.S. Mid Growth
Related Material:
   Fund Fact Sheet Q4 2018
   PM Commentary Q4 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 547 Midcap Growth funds as of 1/31/19.

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 1/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
BUFFALO DISCOVERY FUND3.079.64-3.0113.649.6417.3510.218.92
Morningstar U.S. Mid Growth Index3.5511.281.8216.319.7316.309.627.59
Russell Midcap Growth Index3.9511.490.5115.6010.2616.929.548.58
Morningstar Mid-Cap Growth Category1.6310.69-1.8714.208.3014.998.476.50
As of 12/31/183 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
BUFFALO DISCOVERY FUND-15.76-6.54-6.547.367.6715.929.948.40
Morningstar U.S. Mid Growth Index-17.26-3.16-
Russell Midcap Growth Index-15.99-4.75-4.758.597.4215.128.987.96
Morningstar Mid-Cap Growth Category-17.57-6.65-6.657.275.6113.167.955.92

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.

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 12/31/18)
Upside Capture86.19
Downside Capture93.28
Sharpe Ratio0.52
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 12/31/18) 
# of Holdings87
Median Market Cap$12.55 B
Weighted Average Market Cap$32.67 B
3-Yr Annualized Turnover Ratio57.35%
% of Holdings with Free Cash Flow90.70%
Active Share76.51%
Top 10 Holdings
HoldingTickerSector% of Net
Roper TechnologiesROPIndustrials1.65%
MSCIMSCIFinancial Services1.63%
Align TechnologyALGNHealth Care1.61%
The Cooper Cos.COOHealth Care1.61%
IQVIAIQVHealth Care1.59%
Electronic ArtsEATechnology1.57%
Bio TechneTECHHealth Care1.57%
NasdaqNDAQFinancial Services1.55%
As of 9/30/18. 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 12/31/18. 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 12/31/18. Market Cap percentages may not equal 100% due to rounding.


Clay Brethour, CFA
Portfolio Manager

27 Years of Experience

 View full bio

Dave Carlsen, CFA
Portfolio Manager

27 Years of Experience

 View full bio



(As of 12/31/18) — The 4th quarter of 2018 was a rough period for equity markets, with steep declines dragging full year returns into negative territory. The S&P 500 Index declined -13.52% during the quarter, driven by fears of tightening monetary policy, escalating trade tensions, slowing global economic growth, and margin pressure from higher labor and freight costs. Investors sought safety in government bonds, driving the yield on the 10-year Treasury down from 3.06% at the end of the 3rd quarter to 2.68% at the end of the 4th quarter.

In a reversal of the year-to-date trend, value outperformed growth in the period, as the Russell 3000 Value Index declined -12.24% compared to a -16.33% drop in the Russell 3000 Growth Index. Large companies held up better than smaller companies during the quarter, as the Russell 1000 Index fell -13.82%, the Russell Midcap Index was down -15.37%, and the small cap Russell 2000 Index was down -20.20%. The only sector to post a positive return in the 4th quarter was Utilities. Real Estate, Consumer Staples, and Health Care were down but outperformed the market. Energy was the worst performing sector, driven by steep declines in crude oil. Technology, Industrials, and Consumer Discretionary also underperformed the broad market.


(As of 12/31/18) — In the midst of this more unsettled market environment, the Buffalo Discovery Fund outperformed its benchmark during the quarter, declining -15.76% vs -17.26% for the Morningstar U.S. Mid Growth Index. Positive stock selection within the Technology, Health Care, and Industrials sectors and our underweight in Energy, the worst performing sector during the quarter, were contributing factors to relative performance.

Technology experienced relatively strong individual stock performance from Red Hat and Xilinx, while also experiencing more general positive attribution from our relative underweight in both semiconductors and high valuation tech stocks. Within Health Care, Agilent Technologies and Cooper Companies contributed strong relative performance, adding to the positive allocation effect of our underweight in biotech and high valuation Health Care stocks.

Meanwhile, the Consumer Discretionary sector was the only meaningful headwind to performance during the quarter. Here, our focus on innovation typically leads us to companies that tend to have more international exposure than the benchmark, such as companies with exposure to electronic gaming, e-commerce, electrification of vehicles, etc. Consequently, near term global trade concerns acted as a headwind for stock selection. The Fund continues to invest in innovative, disruptive growth stocks with attractive valuations, by our internal analysis, which we believe should be a key driver of above-index risk-adjusted returns over the long term.

Red Hat shares jumped higher when the company announced it agreed to be acquired by IBM for a substantial premium.
Xilinx was another exceptional performer during the quarter, as the company reported results above expectations, driven by its data center and communications business segment, and appeared poised for strong performance in these business lines in coming quarters.

Align Technology shares sold off after issuing lower than expected 4th quarter 2018 guidance, driven by a near term mix shift to lower complexity, less profitable case volumes. Revenue mix can be variable quarter-to-quarter, but we believe continued robust growth is sustainable over the intermediate to long term as the company has expanded its products to address nearly 70% of the orthodontic market, while less than 15% of the orthodontic market has converted from metal braces to clear aligners.

Electronic Arts shares were weak after it first delayed the new release of Battlefield V amid a crowded Fall ’18 new release cycle within the industry, followed by concern about the uptake of the new FIFA Ultimate Team mode where early monetization results disappointed high initial expectations. Near term, Fortnite’s popularity and a dearth of new competitive releases likely delayed monetization. The company remains a prime beneficiary of the positive business model effects of downloadable games and in-game content combined with a favorable outlook for growth in new users and engagement, especially as live services like FIFA Ultimate Team gain more adoption.


(As of 12/31/18) — The market environment appears fertile for active growth stock investing. Interest rates, inflation, and unemployment remain relatively low by historical standards, providing a healthy backdrop for consumers and businesses. We don’t see a recession on the horizon nor a significant collapse in corporate earnings. However, tighter financial conditions via higher rates and quantitative tightening measures have partially rescinded the extraordinary monetary easing and volatility-dampening measures deployed during and after The Great Recession. Additionally, the broadly-positive stock market effects of both lower taxes and regulation are starting to wane, leaving the more immediate and ever volatile global trade negotiations at center stage in the first half of 2019.

Combined, tighter financial conditions, less synchronized global growth, a divided Congress, and global trade concerns appear to have rattled the market while also placing the U.S. Federal Reserve in a watchful, data-dependent holding pattern. These concerns, along with the negative wealth effects of the 4th quarter’s market swoon, may cause business and consumer spending to shift incrementally more cautious in the near term. After the potential for a 1st quarter earnings reset, we suspect a backup in rates and a trade deal with China could put the market into bullish mode sometime after 1st quarter earnings. Later in the 2nd half of 2019, market pundits will likely return their focus to the Fed’s interest rate normalization process.

Taking all of this together, we believe a volatile, more discerning market is before us in 2019, giving benefit to more judicious growth stock investors, where a steady hand and active management with an eye toward quality, improving profit cycle dynamics, and relatively attractive risk-adjusted returns could hold advantage.

Economic conditions may ebb and flow, but our focus remains steadfast on investing in attractively-priced, financially-strong, well-managed companies whose innovative strategies should fuel secular growth opportunities. We seek those opportunities where thoughtful management teams are in a favorable position to use innovation for market advantage and sustained value creation. Successful innovation may often lead to disruptive share gains in large existing markets, or the creation of large new market opportunities, a strategy which we believe is less dependent on the overall macro
environment for growth.

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 547 for the three-year, 4 stars among 492 for the five-year, and 5 stars among 345 Mid-Cap Growth funds for the ten-year period ending 1/31/19.

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.