Emerging Opportunities Fund
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
Craig Richard, Portfolio Manager
Overall Morningstar Rating™ of BUFOX based on risk-adjusted returns among 573 Small Growth funds as of 10/31/19.
|As of 10/31/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO EMERGING OPPORTUNITIES FUND - Investor||-1.10||23.07||12.86||17.82||9.47||15.34||9.03||8.64|
|BUFFALO EMERGING OPPORTUNITIES FUND - Institutional||-0.98||23.31||13.11||18.02||9.65||15.52||9.20||8.80|
|Morningstar U.S. Small Growth Index||-4.16||19.72||7.78||14.73||9.27||13.91||9.35||9.16|
|Morningstar Small Growth Category||-3.52||18.97||6.66||14.24||8.87||13.12||9.01||8.33|
|As of 9/30/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO EMERGING OPPORTUNITIES FUND - Investor||-4.65||19.02||-3.58||13.69||9.98||14.26||8.93||8.45|
|BUFFALO EMERGING OPPORTUNITIES FUND - Institutional||-4.59||19.19||-3.41||13.87||10.15||14.43||9.09||8.61|
|Morningstar U.S. Small Growth Index||-4.45||16.94||-8.13||11.47||9.88||12.85||9.42||9.05|
|Morningstar Small Growth Category||-4.17||16.80||-7.52||11.52||9.63||12.29||9.06||8.24|
3 Year Risk Metrics
|BUFOX vs Morningstar U.S. Small Growth Index (As of 9/30/19)|
Hypothetical Growth of $10,000
|(As of 9/30/19)|| |
|# of Holdings||67|
|Median Market Cap||$1.02 B|
|Weighted Average Market Cap||$1.43 B|
|3-Yr Annualized Turnover Ratio||41.24%|
|% of Holdings with Free Cash Flow||49.25%|
|% of Holdings with No Net Debt||46.27%|
Top 10 Holdings
|Holding||Ticker||Sector||% of Net|
|Kinsale Capital Group||KNSL||Financial Services||2.62%|
|Community Healthcare Trust||CHCT||Real Estate||2.60%|
|TOP 10 HOLDINGS TOTAL||27.51%|
CAPITAL MARKET OVERVIEW
(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.
The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.
(As of 9/30/19) — The Buffalo Emerging Opportunities Fund posted a -4.65% return for the 3rd quarter. This compares to the Morningstar U.S. Small Growth Index’s return of -4.45%.
Despite some giveback in the quarter, the Fund has returned 19.02% calendar year-to-date, higher than the Index return of 16.94%. In the quarter, we continued to see outperformance by the larger constituents (larger market caps) within the small cap growth universe, a trend that has prevailed all year. The choppiness seen in the quarter was due to many of the overall market sentiment drivers in the quarter (trade tensions, Federal Reserve policy, etc.) in addition to some push-back on valuation of high-growth, high-relative-valuation stocks.
The Fund experienced positive contributions from Health Care holdings, which was offset by underperformance from Information Technology holdings. Health Care holdings returned -0.49% on average versus the Index’s return of -9.18%. Within Information Technology, the Fund’s holdings returned -8.42%, compared to the Index’s return of -3.08%. The Fund’s two largest sector exposures remain Information Technology and Industrials while the portfolio remains underweight Health Care given our considerable underweight to the biotech industry. The Fund ended the quarter with 67 holdings.
(As of 9/30/19) — The market seemed to struggle for direction in the 3rd quarter, with daily headlines involving trade tensions, monetary policy, political back and forth, amongst other headlines. We believe the Federal Reserve will continue to look for ways to bolster the economy as is has for 10 years now, and a resolution on China trade will likely happen before the 2020 election.
We operate on the small end of the small cap growth spectrum and continue to seek ideas that can sustain growth due to secular growth trends, or due to the innovation and disruption they are introducing to an industry. We believe less investor interest in our segment of the market creates opportunities for us to uncover value. As always, we will be paying close attention to the valuations of portfolio holdings, and we will utilize market volatility to trim or add to holdings as risk/reward profiles improve or degrade.
The Buffalo Emerging Opportunities Fund is focused primarily on identifying innovation within U.S. companies with primarily North American revenue bases. We continue to look for prudent ways to deploy cash, and we remain long-term focused, 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%, the Fund will continue to offer a distinct offering from the Index and category peers.
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.
We construct our portfolios based on our own proprietary investment strategy.
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.
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. ©2019 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.