Mid Cap Fund
Fund Objective & Investment Strategy
The investment objective of the Buffalo Mid Cap Fund is long-term growth of capital. The Mid Cap Fund normally invests at least 80% of its net assets in equity securities, consisting of domestic common stocks and preferred stocks of medium capitalization (“mid-cap”) companies, that, at the time of purchase, have market caps between $4.5B and $30B.
The Fund managers seek to identify companies for the Mid Cap 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.
Chris Carter, Portfolio Manager
Overall Morningstar Rating™ of BUFMX based on risk-adjusted returns among 558 Mid-Cap Growth funds as of 11/30/19.
|As of 11/30/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO MID CAP FUND - Investor||4.31||36.34||24.74||12.60||8.71||11.10||8.64||8.48|
|BUFFALO MID CAP FUND - Institutional||4.37||36.52||24.93||12.77||8.87||11.27||8.80||8.64|
|Morningstar U.S. Mid Growth Index||4.94||34.11||22.16||17.75||11.38||14.64||10.48||8.98|
|Lipper Mid Cap Growth Index||4.48||32.03||19.20||17.10||11.01||13.47||9.93||8.68|
|Morningstar Mid-Cap Growth Category||5.01||30.43||17.56||15.09||10.09||13.24||9.33||7.72|
|As of 9/30/19||3 MO||YTD||1 YR||3 YR||5 YR||10 YR||15 YR||Since Inception|
|BUFFALO MID CAP FUND - Investor||1.61||30.30||8.58||11.55||8.48||10.72||8.90||8.28|
|BUFFALO MID CAP FUND - Institutional||1.68||30.48||8.77||11.73||8.65||10.89||9.06||8.45|
|Morningstar U.S. Mid Growth Index||-3.08||25.58||3.91||15.17||11.22||13.92||10.74||8.67|
|Lipper Mid Cap Growth Index||-1.53||24.44||3.95||15.02||10.97||12.82||10.11||8.40|
|Morningstar Mid-Cap Growth Category||-1.80||22.76||1.10||13.10||9.89||12.56||9.48||7.43|
3 Year Risk Metrics
|BUFMX vs Morningstar U.S. Mid Growth Index (As of 9/30/19)|
Hypothetical Growth of $10,000
|(As of 9/30/19)|| |
|# of Holdings||61|
|Median Market Cap||$11.53 B|
|Weighted Average Market Cap||$18.56 B|
|3-Yr Annualized Turnover Ratio||48.02%|
|% of Holdings with Free Cash Flow||88.89%|
|% of Holdings with No Net Debt||30.16%|
Top 10 Holdings
|Name of Holding||Ticker||Sector||% of Net|
|CoStar Group||CSGP||Real Estate||3.17%|
|Palo Alto Networks||PANW||Technology||2.32%|
|CBRE Group||CBRE||Real Estate||2.26%|
|TOP 10 HOLDINGS TOTAL||25.26%|
CAPITAL MARKET OVERVIEW
(As of 9/30/19) — The U.S. stock market continued to advance in the 3rd quarter, as expectations for accommodative monetary policy appeared to outweigh concerns of slowing economic growth. The S&P 500 Index returned 1.70% in the period, bringing the year-to-date return to 20.55% through quarter-end. Weak economic data led the Federal Reserve to cut interest rates twice in the quarter, driving rates lower and bond prices higher. U.S. markets outperformed international markets on the strength of the U.S. dollar.
The Russell 3000 Index gained 1.16% in the quarter. Value narrowly outperformed growth, with the Russell 3000 Value Index up 1.23% and the Russell 3000 Growth Index advancing 1.10%. Large caps generally outperformed small caps in the quarter. The Russell 1000 Index returned 1.42%, the Russell Midcap Index returned 0.48%, and the Russell 2000 Index posted a loss of 2.40%. Defensive sectors led the way in the period, with Utilities up 9.34%, Real Estate up 7.69%, and Consumer Staples up 6.12%. Energy was the worst performing sector with a total return of -6.61%. Health Care was also weak, returning -2.25% on increasing political concerns.
(As of 9/30/19) — The Buffalo Mid Cap Fund returned 1.61% in the 3rd quarter, outpacing the Morningstar U.S. Mid Growth Index’s return of -3.08%. Stock selection in Information Technology, Industrials, and Consumer Discretionary drove most of the relative outperformance. The lack of any exposure to the Energy sector also helped performance relative to the benchmark.
Lam Research shares advanced in the quarter on hopes that the semiconductor cycle is bottoming and capital expenditures for chip manufacturers will rebound in 2020, helping drive sales and earnings growth. Shares rallied despite a weaker outlook for the balance of 2019, but this is a typical reaction for shares of a cyclical grower, when investors are anticipating a bottom in fundamentals.
Tyler Technologies, a provider of information management solutions and services for local government and public schools, is transitioning to subscription sales, which drove strong quarterly results and shares higher during the period. The quarter also saw a new high in bookings, which is a positive indicator for future growth, and management was optimistic about its pipeline for future growth.
Exact Sciences was the top detractor in the 3rd quarter despite posting strong quarterly results. The company came under pressure for its acquisition of Genomic Health, a strategic acquisition to boost its international infrastructure. Investors are concerned that the acquisition is a signal of slowing growth at Exact Sciences, a common worry when rapidly growing companies acquire slower growth assets.
Next, Abiomed shares traded lower on disappointing quarterly results. The company has run into growth headwinds from a U.S. Food and Drug Administration warning letter (that has since been retracted) and slower-than-anticipated sales force growth. However, it owns an enviable competitive position with an under-penetrated solution for supporting heart function during and after periods of stress, including heart attacks.
(As of 9/30/19) — The current economic outlook is mixed, with leading indicators of industrial activity flashing warning signs, while the consumer appears to be in great shape. Headline news is currently dominated by constantly-changing expectations for a trade deal with China, an impeachment inquiry, and U.S. presidential election primaries. While we are mindful of the macro risks, we try to tune out the short-term noise as much as possible and focus on investing in what we consider great companies with strong competitive advantages and attractive growth prospects. As always, thank you for your continued support.
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.