Ticker
  BUFEX

Inception Date
  May 19, 1995

Total Fund Assets
  $68.36 Million  (9/30/17)

Expense Ratio
  0.96%

Benchmark Index
  Russell 1000 Growth

MORNINGSTAR RATING

Overall Morningstar™ rating out of 1,259 Large Growth funds as of 9/30/17 (derived from a weighted average of the fund’s three-, five-, and ten-year risk adjusted return measure).

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

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 1,259 funds in the Large Growth category, as of 9/30/17.

Large Cap News
Investment Strategy

The investment objective of the Buffalo Large Cap Fund is long-term growth of capital. The Large Cap Fund normally invests at least 80% of its net assets in equity securities, consisting of domestic common and preferred stocks of large capitalization (“large-cap”) companies — a company, at time of purchase by the Fund, with a market capitalization greater than or equal to the lesser of $10 billion or the median market capitalization of companies in the S&P 500 Index (which fluctuates due to market and composition conditions, approximately $18.1 billion as of 6/30/16).

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We don’t manage to our benchmark so we don’t have too much concentration in any one single trend. We also manage based on valuation, trimming positions when they approach their potential upside and adding to them as they get closer to the potential downside.

~ Elizabeth Jones, Portfolio Manager

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Performance (%)

As of 9/30/173 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
Buffalo Large Cap Fund2.8317.2016.4716.4716.068.0810.299.45
  Russell 1000 Growth Index5.9020.7221.9412.6915.269.0810.658.96
  Lipper Large Cap Growth Fund Index5.6423.8321.4411.1914.287.569.337.90
  Morningstar Large Growth5.2919.8519.7510.3613.707.559.928.16
As of 9/30/173 MOYTD1 YR3 YR5 YR10 YR15 YRSince Inception
(5/19/95)
Buffalo Large Cap Fund2.8317.2016.4716.4716.068.0810.299.45
  Russell 1000 Growth Index5.9020.7221.9412.6915.269.0810.658.96
  Lipper Large Cap Growth Fund Index5.6423.8321.4411.1914.287.569.337.90
  Morningstar Large Growth5.2919.8519.7510.3613.707.559.928.16
YearBuffalo Large Cap FundRussell 1000 Growth IndexMorningstar Large Growth Category
20166.907.083.23
20157.155.673.60
201412.7613.0510.00
201332.7633.4833.92
201217.2315.2615.34
2011-5.602.64-2.46
201014.3216.7115.53
200950.7437.2135.68
2008-40.84-38.44-40.67
2007*8.1011.8113.35
(As of 6/30/17)

vs Russell 1000 Growth Index
Upside Capture95.20
Downside Capture78.96
Alpha2.48
Beta0.90
Standard Deviation10.41
Sharpe Ratio1.20

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.

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 6/30/17)

# of Holdings46
Median Market Cap$44.50 B
Weighted Average Market Cap$169.02 B
3-Yr Annualized Turnover Ratio44.75%
% of Holdings with Free Cash Flow84.78%
% of Holdings with No Net Debt28.26%
Active Share72.83%
Name of HoldingTickerSector% of Net Assets
Amazon.comAMZNConsumer Discretionary4.69%
MicrosoftMSFTTechnology4.17%
FacebookFBTechnology3.49%
AppleAAPLTechnology3.28%
Alphabet (A)GOOGLTechnology3.15%
SchlumbergerSLBEnergy2.81%
United Parcel GroupUPSIndustrials2.56%
PraxairPXMaterials2.52%
CME GroupCMEFinancials2.49%
ShireSHPGHealth Care2.48%
TOP 10 HOLDINGS TOTAL31.64%
View Full Holdings

As of 6/30/17. 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 6/30/17. 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 6/30/17. Market Cap percentages may not equal 100% due to rounding.

CAPITAL MARKET OVERVIEW

Equity markets continued their strong start to the year during the second quarter, primarily driven by strong corporate earnings growth. The Russell 3000 Index advanced 3.02% in the second quarter. As reported during the June 30 period, earnings from S&P 500 Index companies were up 14% year-over-year in the first quarter, the strongest growth reading since 2011.

Broadly speaking, growth stocks continued their outperformance relative to value stocks, while cyclical stocks that rallied to end 2016 underperformed as investors continue to discount the likelihood of government infrastructure spending and comprehensive tax reform.

The yield on the U.S. 10-year Treasury ended the June 30 period at 2.298%, a decline from its recent high of 2.609% in March due in large part to weaker inflation readings. In contrast, the outlook for growth and interest rate expectations improved in much of the rest of the world, which has driven the trade weighted U.S. dollar down 5.6% year to date. Oil entered bear market territory, with crude prices declining 9% during the quarter in response to stronger than expected inventory levels and rising U.S. production.

As mentioned above investors continued to favor growth over value, and the Russell 3000 Growth Index climbed 4.65% during the period compared to the more modest gain of 1.29% for the Russell 3000 Value Index. By size, microcaps were the best performers with the Russell Microcap Index gaining 3.83%. Meanwhile the large cap Russell 1000 Index gained 3.06%, followed by the Russell Midcap Index at 2.70% and the Russell 2000 Index finishing with a gain of 2.46% during the period.

In general health care was the best performing sector as the chances for legislation to repeal or reform the Affordable Care Act appeared to diminish, and investors reacted by bidding up health care stocks. The technology sector was also a strong performer as the market continued to reward the strong earnings growth produced in this area. Conversely, energy was the worst performing sector driven by the decline in oil prices mentioned above.

PERFORMANCE COMMENTARY

The Buffalo Large Cap Fund appreciated 5.16% in the second quarter of calendar 2017 outperforming the Russell 1000 Growth Index which advanced 4.67%. Stock selection was strong across the Fund with the top sectors for outperformance being healthcare and consumer staples. Sector allocation was a modest negative in the period attributable to the Fund’s slight overweight position in energy, a sector that pulled back over 10% in the benchmark.

TOP CONTRIBUTORS
Three top contributing stocks in the period were athenahealth, Kansas City Southern, and Praxair. athenahealth has been a holding in the Fund for several years. The company offers a subscription business model for its electronic health record and practice management software solutions. In the prior two quarters the company’s operating performance had fallen short of guidance and the stock sold off dramatically. We added aggressively after the last earnings miss because our view is that athenahealth has the best products and business model in the healthcare information technology space. Most of the competitors sell software licenses as opposed to software as a service. Subsequent to the end of the quarter Elliott Management announced they had acquired over 9% of the company. Elliott Management, an activist hedge fund manager, has a reputation of extracting value through pressuring managements to reduce expenses to drive earnings growth and/or consider strategic alternatives. The stock appreciated meaningfully in the wake of this ownership disclosure.

Kansas City Southern recovered from the depressed levels seen in the fourth quarter of 2016 and early 2017 attributable to concerns that the U.S. would have a trade war with Mexico under a Trump Administration. As investors have grown skeptical of Trump’s trade agenda materializing, the equity of Kansas City Southern has recovered.

Finally, Praxair’s stock appreciated meaningfully in the quarter after delivering strong earnings growth in the first quarter of 2017, the best growth in two years. Subsequent to the report Praxair announced plans to merge with Linde. We like the deal since we believe that Praxair can meaningfully improve Linde’s operating margin, which is about 800 basis points lower, over the intermediate to long term and thus potentially unleash substantial value for shareholders. The deal should close in the second half of 2018.

TOP DETRACTORS
Three top detractors in the period were Schlumberger, Stericycle, and TJ Maxx. Schlumberger traded lower in response to the decline in the price of crude oil, stemming from oversupply and high inventories. Schlumberger is a victim of its own success. Schlumberger develops technologies that lower the cost of extracting oil, thereby lowering the breakeven crude oil price for many companies that are fracking in North America. As the Organization of Petroleum exporting Countries (OPEC) limited production in an attempt to drive up the price of crude, North America ramped up production. Since Schlumberger has a global presence, the strength in North America is likely to be offset by weakness outside North America in the near term. But over the intermediate to long term we believe that Schlumberger can adapt to optimize its operating performance and drive solid shareholder returns.

Stericycle’s stock gave back all of its recent gains during the quarter, an overreaction, in our opinion, to concerns over litigation related to pricing. The company is likely to be fined, but we believe the current stock price factors in a worst case scenario which is unlikely to come to fruition.

Finally, TJ Maxx declined in the period in sympathy with other brick and mortar retailers who have experienced declining same store sales. However TJ Maxx has had strong same store sales growth, beating its guidance and Wall Street consensus estimates. We believe that fears related to Amazon and ecommerce impacting TJ Maxx’s growth trajectory are overblown.

OUTLOOK

The Fund ended the second calendar quarter of 2017 with 46 stocks representing 45 companies, as we hold both the Class A and Class C shares of Alphabet, Inc. We exited two positions and added two stocks to the Fund during the second quarter of 2017. The cash weighting stood at 7.74% ending the period. As valuations increased we trimmed some of the winners and expect to deploy the cash during earnings season as buying opportunities present themselves.

While the Fund has had average performance calendar year to date, we strive to be above average. The biggest misstep in the Fund’s positioning year to date has been the exposure to brick and mortar retailers. We believe we have added several consumer discretionary equities to the Fund during the last eight months that are trading at attractive valuations and that should remain relevant even as ecommerce gains share. However the thesis on these holdings has yet to play out and has been a drag on year to date performance. Nevertheless we believe with patience we will be rewarded and that companies with strong brands, convenience and/or a value proposition will prevail.

The Buffalo Large Cap Fund’s process is to invest based on the Buffalo Long Term Growth Trends. By limiting our investment universe to companies that we believe are beneficiaries of the trends, we are exposed to businesses operating in secular growth markets. Over the intermediate to long term, the capital markets are highly efficient. Attractively valued companies exposed to the long term trends driving growth in our economy should potentially outperform.

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 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 Large Cap Fund received 4 stars among 1259 for the three-year, 5 stars among 1125 for the five-year, and 3 stars among 800 Large Growth funds for the ten-year period ending 9/30/17.

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.

©2017 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.