Emerging Opportunities Fund
Recent Media Coverage
Fund Objective & Investment Process
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 584 Small Growth funds as of 8/31/19.
|As of 8/31/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO EMERGING OPPORTUNITIES FUND - Investor||1.30||19.48||-4.30||14.93||8.65||15.15||9.12||8.53|
|BUFFALO EMERGING OPPORTUNITIES FUND - Institutional||1.31||19.57||-4.18||15.10||8.80||15.32||9.28||8.69|
|Morningstar U.S. Small Growth Index||5.70||20.74||-6.38||12.81||9.45||13.82||10.08||9.33|
|Russell 2000 Growth Index||4.06||16.30||-11.02||10.62||8.06||13.06||9.50||9.02|
|Morningstar Small Growth Category||3.98||18.37||-7.91||12.43||8.93||13.18||9.52||8.38|
|As of 6/30/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO EMERGING OPPORTUNITIES FUND - Investor||6.80||24.83||6.59||20.15||8.77||17.03||8.80||8.94|
|BUFFALO EMERGING OPPORTUNITIES FUND - Institutional||6.84||24.92||6.75||20.33||8.93||17.21||8.96||9.10|
|Morningstar U.S. Small Growth Index||2.47||22.38||3.47||15.78||9.50||14.84||9.09||9.54|
|Russell 2000 Growth Index||2.75||20.36||-0.49||14.69||8.63||14.41||8.90||9.37|
|Morningstar Small Growth Category||4.12||21.82||3.22||16.12||9.18||14.47||8.97||8.69|
3 Year Risk Metrics
|BUFOX vs Morningstar U.S. Small Growth Index (As of 6/30/19)|
Hypothetical Growth of $10,000
|(As of 6/30/19)|| |
|# of Holdings||68|
|Median Market Cap||$1.11 B|
|Weighted Average Market Cap||$1.55 B|
|3-Yr Annualized Turnover Ratio||49.74%|
|% of Holdings with Free Cash Flow||50.00%|
|% of Holdings with No Net Debt||48.53%|
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
Central banks and trade policies continued to drive financial markets during the period. The threat of increasing tariffs against China and Mexico contributed to the sell-off early in the quarter, and the June rally was largely a result of dovish central bank commentary, leading investors to anticipate rate cuts in the coming months.
The Russell 3000 Index returned 4.10% in the quarter. By style, growth outpaced value, with the Russell 3000 Growth Index up 4.50% and the Russell 3000 Value Index up 3.68%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 4.25%, just ahead of the Russell Mid Cap Index return of 4.13%. The Russell 2000 returned 2.10% during the quarter. Financials were the best performing sector, followed by Materials and Information Technology. Energy was the only sector to post a negative return, driven by a decline in oil prices. Health Care and Real Estate also underperformed relative to the broad market.
The Fund’s outperformance in the quarter compared to the Index was primarily due to stock selection within the Industrials and Information Technology sectors. These two sectors remain the largest weightings of the Fund’s assets. Industrials returned 19.29% on average for the portfolio in the quarter while the Fund’s Technology holdings gained 7.38%. These results outpaced the benchmark’s average returns of 11.21% and 1.19% in these two sectors, respectively.
Two leading contributors to returns during the period were Kratos Defense & Security Solutions and Amber Road. Kratos is a government defense contractor, with a focus on delivering sophisticated technology at an affordable cost. The company is a leading provider of jet powered drones that can be used for targeting practice (training for missile defense and fighter pilot training) along with emerging production of tactical drones. The tactical drone opportunity is attractive for the U.S. government given the potential to augment or replace expensive fighter planes – typically costing $100 million or more – with $2-3 million unmanned aircraft with similar capabilities.
Shares of Amber Road rose in the quarter on news that it is an acquisition target of a larger peer. Amber Road is a software company aimed at helping importers and exporters deal with the complexity of global logistics including tariffs, duties, logistics, trade compliance, etc. While Amber Road offers a leading software solution for global trade management, the company has struggled to execute on the sales and marketing front over the past several years. We believed the inherent value of the company’s technology was worth more than what was reflected in the share price and were pleased to realize the enhanced value that was unlocked through the buyout.
The Buffalo Emerging Opportunities Fund is primarily focused on identifying innovation among U.S.-based companies with 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 greater than 95%, the Fund will continue to offer a distinct offering from the Index and 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.