Quick Facts

(As of 3/31/17)

Ticker
  BUFGX

Inception Date
  May 19th, 1995

Total Fund Assets
  $332.3 M

Expense Ratio
  0.92%

Benchmark Index
  Russell 1000 Growth

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,306 Large Growth funds as of 3-31-2017 (derived from a weighted average of the fund’s three-, five-, and ten-year risk adjusted return measure, if applicable).

INVESTMENT STYLE

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.

RISK VS CATEGORY

LOW HIGH

Overview

Investment Strategy

The investment objective of the Buffalo Growth Fund is long-term growth of capital. The Growth Fund invests in domestic common stocks and other U.S. equity securities, including preferred stock, convertible securities, warrants and rights, with a goal of maintaining at least 75% of the equity weighting of the Fund’s portfolio in companies with market capitalizations greater than $5 billion or the median of the Russell 1000® Growth Index ($8.9 billion as of 5/31/16), whichever is lower. Capitalization of the Russell 1000® Growth Index changes due to market conditions and index composition.

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We believe that actively investing in a relatively concentrated portfolio of great American companies will lead to superior wealth creation over time. We look for companies that could benefit from secular market trends, combined with the ability to extend competitive advantages across borders, to serve large, profitable and fast-growing markets abroad.

~ Dave Carlsen, Portfolio Manager

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Performance

(As of 3/31/17)3 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
Buffalo Growth Fund8.068.0612.927.5811.098.207.159.75
Russell 1000 Growth Index8.918.9115.7611.2713.329.137.218.66
Lipper Large Cap Growth Fund Index10.2610.2615.778.9511.607.676.007.51
Morningstar Large Growth8.638.6314.858.5311.557.716.66-
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 3/31/17)3 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
Buffalo Growth Fund8.068.0612.927.5811.098.207.159.75
Russell 1000 Growth Index8.918.9115.7611.2713.329.137.218.66
Lipper Large Cap Growth Fund Index10.2610.2615.778.9511.607.676.007.51
Morningstar Large Growth8.638.6314.858.5311.557.716.66-
Each Morningstar category average represents a universe of funds with similar objectives.
YearBuffalo Growth FundRussell 1000 Growth IndexMorningstar Large Growth Category
20164.867.083.23
20152.645.673.60
20148.8813.0510.00
201335.4033.4833.92
201211.8615.2615.34
2011-0.062.64-2.46
201023.2816.7115.53
200933.3437.2135.68
2008-32.69-38.44-40.67
20077.7611.8113.35
Each Morningstar category average represents a universe of funds with similar objectives.
(As of 3/31/17)
vs Russell 1000 Growth Index
Upside Capture76.90
Downside Capture93.18
Alpha-1.99
Beta0.87
Standard Deviation9.91
Sharpe Ratio0.75

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.

Growth of $10k

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

(As of 3/31/17)
# of Holdings60
Median Market Cap$75.30 B
Weighted Average Market Cap$162.95 B
3-Yr Annualized Turnover Ratio27.23%
% of Holdings with Free Cash Flow80.00%
% of Holdings with No Net Debt25.00%
Active Share66.73%
HoldingTickerSector% of Portfolio
Facebook FBTechnology3.96%
Apple AAPLTechnology3.48%
Microsoft MSFTTechnology3.03%
Priceline PCLNConsumer Discretionary2.94%
Alphabet C GOOGLTechnology2.92%
Amazon.com AMZNConsumer Discretionary2.71%
Home Depot HDConsumer Discretionary2.61%
Alphabet A GOOGLTechnology2.51%
Visa VFinancial Services2.50%
Honeywell HONIndustrials2.36%
TOP 10 HOLDINGS TOTAL29.02%
View Full Holdings

As of 12/31/16. 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.

Buffalo publishes this listing of securities held as of the most recent calendar-quarter end, with a 30 or 60 day lag depending on the portfolio. Buffalo may exclude any portion of holdings from publication when deemed in the best interest of the portfolio.

The portfolio data and its presentation here may differ from the complete schedules of investments in regulatory filings due to differing accounting and reporting requirements.

As of 3/31/17. 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.

As of 3/31/17. Market Cap percentages may not equal 100% due to rounding.

Commentary

CAPITAL MARKET OVERVIEW

Capital markets got off to a volatile start in 2016 with the Russell 3000 Index dropping over 11% and West Texas Intermediate (WTI) Crude Oil down almost 30% by mid-February. Concerns about soft Chinese economic growth contributed to equity market weakness early in the year, and the energy complex was struggling to resolve its oversupplied condition. Meanwhile, perceived “safe-haven” assets performed strongly as U.S. 10-year Treasury notes advanced and gold appreciated over 15% during the same time frame. Economic concerns and a falling stock market led the Federal Reserve to adopt a less aggressive stance toward interest rate increases, and falling crude production eventually calmed fears of oversupply. These drivers led to a rebound in prices of both equities and crude oil and began a period of steadily rising prices and declining volatility that would continue from mid-February through the end of the year with only minor interruption. Interestingly, perceived ”safe-haven” assets continued to perform strongly as gold and U.S. Treasuries rallied alongside equities into the summer and largely held those gains into the fall. The fourth quarter of 2016 began with this uneasy disequilibrium still largely intact, but sentiment changed dramatically with Donald Trump’s surprise election victory on November 8th. The election outcome created expectations of pro-growth policies and deregulation that drove accelerating gains in stock prices, higher interest rates and associated declines in the prices of both Treasury bonds and gold, all of which generally persisted through the end of 2016.

The Russell 3000 Index returned 12.74% for the full year. The Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 11.01% during the year, and smaller-capitalization indices such as the Russell Microcap Index, the Russell 2000 Index and the Russell Midcap Index outperformed the large-capitalization Russell 1000 Index by 8.31%, 9.25% and 1.74%, respectively. Much of the outperformance of value stocks can be attributed to the strong performance of the energy sector. Outperformance of small-capitalization stocks was reflective of investor aversion to greater international exposure of larger companies in the face of a rising dollar, as well as increasingly optimistic expectations for the domestic economy and for a lower U.S. corporate tax rate following the election. For the year, Energy and Materials were the best performing sectors in the Russell 3000 Index as expectations for infrastructure investment and increasing investor risk appetite following the election contributed to the reversal of prior-year underperformance that was already underway. Health Care was the worst performing sector for the year, as concerns about political backlash against rising drug prices contributed to declines in Pharmaceutical & Biotech stocks.

For the fourth quarter, the Russell 3000 Index returned 4.21%. The Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 6.04% during the quarter while smaller-capitalization indices such as the Russell Microcap Index and the Russell 2000 Index outperformed the large-capitalization Russell 1000 Index by 6.22% and 5.00%, respectively. The Russell Midcap Index of mid-sized companies underperformed the Russell 1000 Index by 0.62% in the fourth quarter and was the lone exception to the trend of small outperforming large. Outperformance of more cyclically sensitive value stocks and small-capitalization stocks reflected some of the same drivers that were in place earlier in the year, as well as increasingly optimistic expectations for economic growth, higher interest rates and expectations of a lower corporate tax rate in the U.S. following the election. Financial Services was the best performing sector in the fourth quarter, benefiting from higher interest rates and expectations for a less adversarial regulatory regime under the new Republican administration. The flip-side of greater risk appetite was less demand for stable, “bond-like” equities which was reflected in the lower-risk Consumer Staples sector performing poorly during the quarter. Political risk continued to put pressure on the Health Care sector, as uncertainty regarding potential for drug price regulation and repeal of the Affordable Care Act contributed to Health Care being the worst performing sector during the quarter.

PERFORMANCE COMMENTARY

In the fourth quarter of 2016, the Buffalo Growth Fund returned -1.25%, trailing the benchmark Russell 1000 Growth Index return of 1.01%. For the full year, the fund returned 4.86%, trailing the benchmark return of 7.08%. In the quarter, the cyclical rally after the U.S. election cost the fund performance relative to the benchmark. The fund is positioned to hedge in downside markets rather than maximize potential upside leverage in a sluggish growth environment. The surprise in the election sparked many cyclical segments of the market, most notably the industrials sector, where the fund has an underweight position relative to the index.

Among the top contributors during the quarter were Wells Fargo, Baker Hughes, and CME Group. Shares in both Wells Fargo and CME Group rallied on the heels of the US Presidential election, where a Republican victory raised the probability of less regulation in the financial industry. In addition, tighter policy outlook from the Federal Reserve, including a December interest rate hike, caused the yield curve to steepen. This led to an increase in forecasted profit outlooks for both companies by Wall Street analysts, with Wells Fargo benefiting from a steeper yield curve and CME Group’s option business from volatility in interest rates. Finally, Baker Hughes shares were higher in the quarter on better than expected earnings and a decision to merge with GE Oil and Gas. The combination should create a company with greater scale and a global footprint, enabling cost synergies and more effective competition with larger peers like Haliburton and Schlumberger.

Detractors in the period were Facebook, Anheuser-Busch, and Nielsen Holdings. Facebook shares were lower after management delivered cautious commentary on 2017 growth and margin prospects. Despite having delivered similar caution in 2015 and 2016, guidance for lower ad load growth in the Facebook news feed caused investor concern. Anheuser-Busch shares were lower on weaker earnings driven most notably by continued economic weakness in Brazil and foreign currency hedges that rolled off exposing it to a stronger dollar. In addition, the rally in the US dollar during the quarter added selling pressure on shares as the majority of Anheuser-Busch profits come from international markets and a strong dollar will be a headwind to reported earnings growth. Last, Nielsen shares declined on earnings that missed estimates and lower guidance due to weakness in discretionary spending by its consumer products companies. Consolidation and cost rationalization efforts in the consumer products industry has put downward pressure on spending budgets for several Nielsen services.

OUTLOOK

As we stated last quarter, the outlook for global growth remains sluggish. In Asia, Japan has struggled to stimulate economic growth through numerous monetary policy measures. While China, has struggled to transition from an export driven economy to a local consumer driven economy. In Europe, political movements in multiple countries have gained momentum by questioning membership status to the European Union (EU). This has added to concern about the future of the EU following the United Kingdom’s referendum vote to exit the EU. The political uncertainty in Europe is a headwind to growth. Domestically, the economy remains on relatively stronger footing and the outlook was boosted by plans for fiscal stimulus proposed by President Trump. However, the rally in the US dollar will be a headwind to growth for US multinational companies exporting goods abroad. Overall, we enter 2017 modestly more positive on the US economic growth outlook, but continue to be cautious globally. We are taking incremental risks were it makes sense, but continue to keep an eye towards hedging capital from potential downside risks.

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. Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. 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.

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FOR INDIVIDUAL INVESTORS

The Morningstar RatingTM 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 RatingTM 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 Growth Fund received 3 stars among 1,306 for the three-year, 3 stars among 1,161 for the five-year, and 3 stars among 805 Large Growth category funds for the ten-year period ended 3/31/17.

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