Fund Objective & Investment Process
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 Morningstar U.S. Growth Index, whichever is lower. Capitalization of the Morningstar U.S. Growth Index changes due to market conditions and index composition.
With respect to the remaining 25% of the equity weighting of the Fund’s portfolio, the Fund may invest in companies of any size, including, but not limited to, those with market capitalizations less than the lower of the median of the Morningstar U.S. Growth Index or $5 billion.
The Fund managers seek to identify companies that are expected to 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 are screened using in-depth, in-house research to identify those which the managers believe have favorable attributes, including attractive valuation, strong management, conservative debt, free cash flow, scalable business models, and competitive advantages.
The Growth Fund invest in secular trend leaders: attractively-priced, financially-strong, well-managed companies across all market cap segments, which we believe are favorably positioned to harvest the lion’s share of big secular growth trends.
Dave Carlsen, CFA, Co-Portfolio Manager
Overall Morningstar Rating™ of BUFGX based on risk-adjusted returns among 1,233 Large Growth funds as of 7/31/19.
|As of 7/31/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO GROWTH FUND - Investor||3.26||25.26||12.13||15.25||11.86||13.92||9.85||10.39|
|BUFFALO GROWTH FUND - Institutional||3.28||25.36||12.28||15.42||12.02||14.09||10.01||10.56|
|Morningstar U.S. Growth Index||2.56||25.88||11.14||17.70||13.97||15.81||10.28||-|
|Russell 1000 Growth Index||2.38||24.23||10.82||17.13||14.25||15.74||10.49||9.50|
|Lipper Large Cap Growth Fund Index||1.92||23.62||10.17||17.10||13.01||14.35||9.53||8.48|
|Morningstar Large Growth Category||1.89||23.06||9.06||15.67||11.98||14.05||9.59||8.62|
|As of 6/30/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO GROWTH FUND - Investor||6.85||23.20||12.20||16.33||11.17||14.76||9.34||10.36|
|BUFFALO GROWTH FUND - Institutional||6.89||23.29||12.36||16.51||11.34||14.93||9.50||10.52|
|Morningstar U.S. Growth Index||5.16||23.74||11.32||18.95||13.20||16.33||9.64||-|
|Russell 1000 Growth Index||4.64||21.49||11.56||18.07||13.39||16.28||9.90||9.44|
|Lipper Large Cap Growth Fund Index||4.71||21.68||11.00||18.67||12.41||15.00||8.97||8.44|
|Morningstar Large Growth Category||4.63||21.11||10.02||16.97||11.33||14.71||9.07||8.58|
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
|BUFGX vs Morningstar U.S. Growth Index (As of 6/30/19)|
Hypothetical Growth of $10,000
This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund on the inception date of the benchmark index (6/30/97). This chart does not imply future performance.
|(As of 6/30/19)|| |
|# of Holdings||53|
|Median Market Cap||$67.60 B|
|Weighted Average Market Cap||$260.69 B|
|3-Yr Annualized Turnover Ratio||20.39%|
|% of Holdings with Free Cash Flow||86.79%|
Top 10 Holdings
|Name of Holding||Ticker||Sector||% of Net|
|Abbott Labs||ABT||Health Care||2.56%|
|The Walt Disney Co||DIS||Consumer Discretionary||2.45%|
|Home Depot||HD||Consumer Discretionary||2.45%|
|TOP 10 HOLDINGS TOTAL||33.00%|
As of 6/30/19. 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.
As of 6/30/19. Market Cap percentages may not equal 100% due to rounding.
CAPITAL MARKET OVERVIEW
(As of 6/30/19) — The S&P 500 Index posted its best 1st half of a calendar year since 1997, rising 18.54% from January 1 to June 30. During the most recent quarter, the index was in negative territory for the first two months (April and May) then rose 7.05% in the final month, marking the best June since 1955, and finished with a return of 4.30% for the quarter.
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.
(As of 6/30/19) — The Buffalo Growth Fund gained 6.85% during the 2nd quarter, beating the benchmark Morningstar U.S. Growth Index return of 5.16%. Stock selection within Information Technology, Consumer Staples, Health Care, and Consumer Discretionary contributed to the relative outperformance during the period. Within the Information Technology sector, owning non-benchmark constituents Qualcomm (QCOM) and Shopify (SHOP) and not owning benchmark constituent NVIDIA Corporation (NVDA) accounted for a significant portion of the positive stock selection during the quarter. Additionally, the Fund’s benchmark underweight to the weak performing Energy sector had a positive relative impact on the return for the quarter.
Top contributors during the 2nd quarter were Microsoft (MSFT), Disney (DIS), and Idexx Laboratories (IDXX).
After being a top contributor in the 1st quarter, Microsoft repeated the distinction as it posted stellar results in April, driven by continued outperformance in commercial cloud sales, a rebound in Windows OEM sales, sustained growth in on-premises server licensing, and unexpected strength in Japan. We believe the company has a long runway of revenue growth opportunities with margin expansion for several years.
Disney hosted an Analyst Day in April that was well-received by investors as the company laid out its Direct to Consumer strategy via an online streaming offering to start in November. With the completion of Disney’s 21st Century Fox acquisition, Disney will have a robust content offering to competitively position its digital streaming offering and provide an additional leg of growth for the company long-term.
Idexx Laboratories reported strong financial results in May and increased guidance for the year. With the political rhetoric being generated by aspiring Presidential candidates, we believe the animal healthcare industry remains a relative safe haven investment area for investors, with Idexx Labs being a market leader.
The biggest detractors in the period were Alphabet (GOOG), Boeing (BA), and Intuitive Surgical (ISRG). After posting a strong 1st quarter, Alphabet reported weaker than anticipated revenues in April that adversely impacted the stock price. Additionally, later in the quarter, the U.S. Federal Trade Commission (FTC) and Department of Justice (DoJ) have initiated an antitrust investigation of Alphabet in the U.S. In 2013, the FTC closed a multi-year investigation of Alphabet’s business practices while taking no action. Boeing continued to be negatively impacted with its 737 MAX woes, while Intuitive Surgical posted financial results that were below estimates.
(As of 6/30/19) — 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, but valuations are at lofty levels, especially for big secular growers. Companies will have tougher earnings comparisons in the 2nd half of the year, which could increase the stock market’s overall volatility during the summer months. Additionally, this volatility might be amplified going forward as companies provide financial guidance on the impact of the higher costs that tariffs are having on their businesses.
Nonetheless, given the more dovish Federal Reserve stance, and central banks throughout the world continuing to be accommodating with low interest rates, we believe that stocks will continue to have a runway for growth into 2020 and provide a tailwind for the Growth Fund’s focus of finding secular trend stars – companies that are attractively-priced, financially-strong, well-managed across all market cap segments, which we believe are favorably positioned to harvest the lion’s share of big secular growth trends.
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.
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.
The Buffalo Growth Fund (BUFGX) received 3 stars among 1,233 for the 3-year, 3 stars among 1,104 for the 5-year, and 3 stars among 815 Large Growth funds for the 10-year period ending 7/31/19.
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. ©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.