May 19, 1995
Total Fund Assets
$206.48 Million (6/30/18)
Morningstar U.S. Growth
Overall Morningstar™ rating out of 1,265 Large Growth funds as of 7/31/18 (derived from a weighted average of the fund’s three-, five-, and ten-year risk adjusted return measure).
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
The Morningstar™ Risk vs Category rating is an assessment of the variations in a fund’s monthly returns, with an emphasis on downside variations, in comparison to the 1,265 funds in the Large Growth category, as of 7/31/18.
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.
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
While the Fund’s investments will consist primarily of domestic securities, the Fund may invest up to 20% of its net assets in sponsored or unsponsored ADRs and securities of foreign companies that are traded on U.S. stock exchanges.
The Fund managers seek to identify companies for the Growth Fund’s portfolio 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.
|As of 7/31/18||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|Buffalo Growth Fund||7.85||12.29||20.99||11.68||12.81||11.13||10.06||10.32|
|Morningstar U.S. Growth Index||8.36||14.15||24.66||13.67||15.79||11.82||9.93||-|
|Russell 1000 Growth Index||8.48||10.40||22.84||14.81||15.83||12.37||10.34||9.45|
|Lipper Large Cap Growth Fund Index||7.52||11.67||21.82||13.08||14.82||10.82||9.26||8.41|
|Morningstar Large Growth Category||7.17||10.17||20.31||12.03||13.68||10.72||9.55||8.60|
|As of 6/30/18||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|Buffalo Growth Fund||7.78||10.37||21.04||11.85||13.95||11.08||10.30||10.28|
|Morningstar U.S. Growth Index||7.71||12.03||26.23||14.27||16.70||11.26||10.08||-|
|Russell 1000 Growth Index||5.76||7.25||22.51||14.98||16.36||11.83||10.30||9.34|
|Lipper Large Cap Growth Fund Index||5.94||9.10||22.71||13.52||15.68||10.34||9.30||8.33|
|Morningstar Large Growth Category||5.13||7.51||20.58||12.21||14.37||10.23||9.52||8.52|
|vs Russell 1000 Growth Index|
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.
As of July 27, 2018 the Morningstar U.S. Growth Index has replaced the Russell 1000 Growth Index as the Fund’s primary benchmark. The Advisor believes that the new index is more appropriate given the Fund’s holdings.
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.
|# of Holdings||61|
|Median Market Cap||$51.79 B|
|Weighted Average Market Cap||$215.93 B|
|3-Yr Annualized Turnover Ratio||26.28%|
|% of Holdings with Free Cash Flow||83.61%|
|Name of Holding||Ticker||Sector||% of Net Assets|
|Abbott Labs||ABT||Health Care||2.26%|
|Booking Holdings||BKNG||Consumer Discretionary||2.05%|
|TOP 10 HOLDINGS TOTAL||28.75%|
As of 3/31/18. 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 6/30/18. 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 6/30/18. Market Cap percentages may not equal 100% due to rounding.
CAPITAL MARKET OVERVIEW
(As of 6/30/18) — Supportive economic data drove positive domestic equity performance in the 2nd quarter. The unemployment rate declined to 3.8%, the lowest level in 18 years. Wages have continued to rise, with average hourly earnings up 2.7% as of May. Corporate earnings growth continued to be robust. The Federal Reserve increased their target rate by 0.25% and raised their forecast for growth and inflation again in June. Meanwhile, economic growth outside the U.S. slowed, with the divergence driving strength in the U.S. dollar. Increasing trade protectionism along with the dollar’s strength, led to the relative outperformance of domestically focused industries and smaller capitalization companies, which generally do less international business than large caps. Crude oil prices continued to rise, despite the strong dollar, driven by lower stockpiles in the U.S. and President Trump’s decision to withdraw from the Iran nuclear accord.
The Russell 3000 Index returned 3.89% in the quarter. Growth continued to outpace value, with the Russell 3000 Growth Index up 5.87% and the Russell 3000 Value Index up 1.71%. By size, the Russell Microcap Index led the way with a return of 9.97%, followed by the small cap Russell 2000 Index at 7.75%. The large cap Russell 1000 Index was up 3.57%, and the Russell Midcap Index was up 2.82%. Energy was the best performing sector, driven by strength in crude oil prices. The Consumer Discretionary, Information Technology, and Real Estate sectors also had strong quarters. Meanwhile, trade fears and rising input costs caused the underperformance of Industrials, and Financials were weaker as a result of the yield curve flattening.
(As of 6/30/18) — The Buffalo Growth Fund gained 7.78% during the quarter, outperforming the benchmark Russell 1000 Growth Index return of 5.76%. The Fund outperformed the benchmark with help from positive stock selection in the Health Care and Information Technology sectors. Our Health Care Equipment-related investments like Align Technology and Baxter performed well, while within the Information Technology sector, our investments in Semtech and Intuit, within the semiconductors and software-related industries, boosted returns. The Fund was also aided by a positive sector allocation effect due to our underweight in Consumer Staples, as multinational consumer product companies came under pressure with increasing trade tensions throughout the world. Meanwhile our stock selection in Financials was a modest headwind as the sector was negatively impacted by the flattening of the yield curve.
Amazon continued to gobble up retail and cloud computing dollar share, which fueled another quarter of robust stock price appreciation. Higher margin business segments like Amazon Web Services (AWS) and advertising outperformed expectations leading to more positive-than-expected overall corporate margin. The company continued to be a prime beneficiary of the transition to online commerce and cloud computing.
Align Technology, the maker of clear aligners for dental malocclusion and a long term holding in the fund, continued to grow in excess of expectations. We believe robust growth is sustainable over the intermediate to long term as the company has expanded its products to address nearly 70% of the orthodontic market while less than 15% of the orthodontic market has converted from metal braces to clear aligners.
Starbucks announced strategic priorities towards the end of June that had investors questioning the future growth profile of the company and put downward pressure on the stock price. The new priorities included store-based optimization by closing 150 stores in the United States next year and exploring licensing opportunities in certain markets outside the U.S. and China. Additionally, the company announced its plan to reduce selling, general, and administrative expense by as much as 1% of system sales to help drive bottom-line improvement. While the company is experiencing tepid U.S. traffic trends that have negatively impacted near term comparisons, we believe the implementation of the strategic priorities should have a positive impact on long-term growth and should continue to strengthen the Starbucks brand worldwide.
WABCO Holdings reported earnings that beat expectations for the 1st quarter and raised its full-year guidance driven by stronger assumed organic sales, but higher raw material costs (steel and aluminum prices) drew investor concerns about the impact to future earnings. Additionally, ongoing trade tensions between the U.S., Europe, and China could have a negative impact on earnings. Approximately 21% of WABCO’s last 12 month revenue was attributed to Germany and 12% to China. We remain positive on the multi-year earnings power of the company and believe in the secular growth opportunity that should provide a tailwind to its long-term growth prospects.
(As of 6/30/18) — The market environment for equities remains favorable, in our view. Interest rates, inflation and unemployment remain low while corporate earnings grind higher, buoyed by broadening global growth and recent U.S. corporate tax reform. Growing cash flows combined with foreign cash repatriation should drive improved business investment and more aggressive capital allocation activity including merger and acquisitions (M&A), buybacks, and dividend increases.
Expectations that the U.S. economy is continuing to strengthen amid a tighter labor market should put upward pressure on interest rates as the Federal Reserve continues the process of delicately weaning markets off easy money. The Fed, in effect, is ceding control to free markets which are much more unforgiving than what the market has become accustomed to these last several years. As market stabilization forces wane, the market is likely to become more volatile and data point driven. Day-to-day concerns like a global trade war can subject the market to potentially big swings following each data point that validates or contradicts the climate of opinion.
If volatility picks up, the environment should evolve toward a stock picker’s market where a steady hand and active management with an eye toward quality and identifying attractive risk-adjusted returns could hold advantage over passive money strategies. We stand poised to capitalize when near term stock price volatility presents an opportunity to improve risk-adjusted expected returns within the portfolio.
Economic conditions may ebb and flow, but our distinct focus for the Buffalo Growth Fund is to hitch our wagon to secular trend stars — 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. In our opinion these are the best ideas the growth equity team derives from the Buffalo Secular Growth Trends strategy.
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.
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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.
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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 received 3 stars among 1265 for the three-year, 3 stars among 1137 for the five-year, and 3 stars among 821 Large Growth funds for the ten-year period ending 7/31/18.
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.
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