Quick Facts
InvestorInstitutional
Ticker:BUFOXBUIOX
Inception Date:5/21/20047/1/2019
Expense Ratio:1.49%1.34%
Total Net Assets:$93.17 Million  (12/31/19)
Category:Small Cap Growth
Benchmark:Morningstar U.S. Small Growth
Related Material:
   Fund Fact Sheet Q4 2019
   PM Commentary Q4 2019
   Summary Prospectus
Recent Media Coverage
Fund Objective & Investment Process

The investment objective of the Buffalo Emerging Opportunities Fund is long-term growth of capital. The Fund invests primarily in equity securities, consisting of a portfolio of between 50-70 domestic common stocks, preferred stocks, convertible securities, warrants and rights, of companies that, at the time of purchase by the Fund, have market capitalizations of $1.5 billion or less.

The Fund managers seek to identify companies for the Fund’s portfolio that are expected to experience growth based on the identification of long-term, measurable secular trends, and which, as a result, 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 premier early-stage growth companies which generally demonstrate:

  • Strong management teams
  • Little or no debt
  • Potential for increasing free cash flow
  • Scalable business models with a competitive advantage
  • Potential for increasing margins
  • Attractive risk/reward given the market framework
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We believe investing in an actively-managed portfolio of premier, early-stage, growth companies could lead to growth of capital over time. We look for companies that could benefit from long-term industrial, technological, or general market trends, and are trading at what we view as attractive valuations.

Craig Richard, Portfolio Manager

Morningstar Rating

       

Overall Morningstar Rating™ of BUFOX based on risk-adjusted returns among 574 Small Growth funds as of 2/29/20.

Investment Style

Performance (%)

As of 2/29/203 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/21/04)
BUFFALO EMERGING OPPORTUNITIES FUND - Investor-4.96-6.994.6714.438.3914.358.428.54
BUFFALO EMERGING OPPORTUNITIES FUND - Institutional-5.02-6.994.7814.598.5514.528.588.70
  Morningstar U.S. Small Growth Index-5.78-6.26-0.109.947.7312.668.748.96
  Morningstar Small Growth Category-5.38-7.120.319.427.4811.898.438.12
As of 12/31/193 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/21/04)
BUFFALO EMERGING OPPORTUNITIES FUND - Investor12.6134.0334.0317.8610.4915.458.719.14
BUFFALO EMERGING OPPORTUNITIES FUND - Institutional12.5934.2034.2018.0310.6515.628.879.30
  Morningstar U.S. Small Growth Index9.1127.6027.6014.2110.2613.428.999.51
  Morningstar Small Growth Category9.4127.6627.6613.499.6112.217.948.73
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
BUFOX vs Morningstar U.S. Small Growth Index (As of 12/31/19)
Upside Capture99.92
Downside Capture82.19
Alpha5.61
Beta0.83
Sharpe Ratio1.09
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

Portfolio Characteristics
(As of 12/31/19) 
 
# of Holdings66
Median Market Cap$1.06 B
Weighted Average Market Cap$1.58 B
3-Yr Annualized Turnover Ratio60.34%
% of Holdings with Free Cash Flow51.52%
% of Holdings with No Net Debt46.97%
Active Share94.60%
Top 10 Holdings
HoldingTickerSector% of Net
Assets
CerenceCRNCTechnology2.70%
i3 VerticalsIIIVTechnology2.43%
MimecastMIMETechnology2.36%
EnvestnetENVTechnology2.28%
8x8EGHTCommunications2.26%
Kornit DigitalKRNTIndustrials2.26%
Compass Diversified HoldingsCODIIndustrials2.12%
Community Healthcare TrustCHCTReal Estate2.05%
Air Transport Services GroupATSGIndustrials2.05%
Playa Hotels & ResortsPLYAConsumer Discretionary2.05%
TOP 10 HOLDINGS TOTAL22.56%
As of 12/31/19. 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 12/31/19. 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 12/31/19. Market Cap percentages may not equal 100% due to rounding.

Management

Craig Richard, CFA
Portfolio Manager

17 Years of Experience

 View full bio

Doug Cartwright, CFA
Portfolio Manager

13 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 12/31/19) — The combination of a U.S. Federal Reserve (Fed) interest rate cut, an improving economic outlook, and easing trade tensions, sent equity markets sharply higher in the 4th quarter. The S&P 500 Index advanced 9.10% during the period, which brought the full-year (2019) gain to 31.49%. The Fed cut interest rates three times in 2019, erasing the brief yield curve inversion and assuaging fears of a recession. The economy continued to add new jobs at a strong pace and unemployment declined to 3.5%. Consumer spending remained healthy, and there is optimism for better business investment following the announced “phase one” trade deal with China.

Similar to the S&P 500 Index, the broad-based Russell 3000 Index returned 9.04% during the quarter. Growth outperformed value, as the Russell 3000 Growth Index returned 10.62% compared to a return of 7.41% for the Russell 3000 Value Index. Smaller companies outperformed larger companies, as one would expect in a “risk-on” period. The Russell Microcap Index surged 13.45% and the Russell 2000 Index advanced 9.94%. Large company benchmarks such as the Russell 1000 Index advanced 9.04% while the Russell Midcap Index produced a return of 7.06%. Technology and Health Care were the best performing sectors in the quarter, while more defensive areas of the market lagged such as Real Estate and Utilities. Higher long-term interest rates weighed on high-quality bond proxies – the safe haven 10-year U.S. Treasury Bond produced a return of -1.74% during the quarter.

PERFORMANCE COMMENTARY

(As of 12/31/19) — The Buffalo Emerging Opportunities Fund posted a return of 12.61% for the quarter ending December 31, 2019. This compares favorably to the Morningstar U.S. Small Growth Index’s return of 9.11%. The strong quarter capped off a solid 2019 as the Fund posted a gain of 34.03% versus the Index’s return of 27.60%.

Smaller companies (as measured by market capitalization) within the small cap universe outperformed larger market cap companies in the 4th quarter. This was a reversal from the past several quarters and served as a tailwind for the Fund’s performance. However, the major driver of outperformance was due to portfolio results in the Technology sector, which produced a return of 27.04% in the quarter compared to the Index’s return of 7.76% for the sector. The Fund remains overweight Technology and Industrials and underweight Health Care due to a continued underweighting of the biotechnology industry.

A leading contributor during the period was a newer Technology holding, Cerence, Inc. Cerence was a recent spin-off from parent company Nuance Communications. As a stand-alone company, Cerence can focus its resources on its attractive positioning in the artificial intelligence market for automobiles globally. Serving over 60 auto manufacturers, Cerence provides software for vehicle intelligence systems along with a cloud offering for virtual assistance (news, weather, directions, etc.). With a commanding market share at the early stages of technology penetration in the automobile, Cerence has a nice secular tailwind behind them. Additionally, Cerence generates very healthy profit and cash flow margins. Growing investor awareness of the company following the spin-off helped drive healthy returns in the quarter.

OUTLOOK

(As of 12/31/19) — Overall, 2019 produced one of the strongest equity market returns in recent memory. Domestic growth indices across the board posted 20%+ returns and recovered from the pullback experienced in late 2018. Improved investor sentiment in 2019 likely contributed as optimism regarding the potential for a U.S./China trade deal combined with accommodating central bank monetary policy to prop up financial markets. As we have mentioned before, small cap companies generally have less exposure to international markets than their larger company peers, and we believe this will continue to be relatively positive for small caps given the current stability seen in the U.S. economy. The Buffalo Emerging Opportunities Fund is focused primarily on identifying innovation within U.S. companies with primarily North American revenue bases. The U.S. presidential election provides a potential wild card given the range of political, regulatory, and economic positions held by various democratic candidates.

We believe less investor interest in the smaller market cap segment of the investment landscape creates opportunities for us to uncover value. The Fund typically invests at the smaller end of the small cap growth spectrum, and Fund management continues to seek companies with sustainable growth due to secular trends or innovative and disruptive products. As always, we will pay close attention to the valuations of our holdings and will utilize market volatility to trim or add to holdings as risk/reward profiles improve or degrade. The Fund ended the quarter with 66 holdings, down slightly from 67 as of the previous update.

We will continue to look for prudent ways to deploy cash and will remain focused on the long-term, aiming to be shrewd when the market environment presents opportunity and more cautious when it does not. With an active share of greater than 95% at the end of the period, the Fund continued to be a distinct offering compared to the Index and category peers.

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. Earnings growth is not representative of the fund’s future performance.

Literature

General Account
Forms
Investor
Class
Institutional
Class
Both
  New Account Application
  New Account Application - Entity
  Change or Add Account Details
  Cost Basis Method Election
  Power of Attorney
Individual Retirement Account (IRA) Forms
  IRA Account Application
  IRA Beneficiary Addition / Change
  IRA Required Minimum Distribution (RMD)
  IRA / Qualified Plan Distribution Request
  IRA Transfer
Coverdell Education Savings Accounts (ESA) Forms
  Coverdell ESA Application
  Coverdell ESA Distribution Request
  Coverdell ESA Transfer
Retirement Information
  Retirement Savings Options for Individuals

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 Emerging Opportunities Fund (BUFOX) received 4 stars among 574 for the three-year, 3 stars among 502 for the five-year, and 4 stars among 381 Small Growth funds for the ten-year period ending 2/29/20.

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. ©2020 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.