Quick Facts
Investor Institutional
Ticker: BUFSX BUISX
Daily Pricing:  
As of 2/7/2023  
NAV: $14.99 $15.08
$ Change: $0.17 $0.17
% Change:
1.15% 1.14%
YTD:
11.95% 11.95%
Inception Date: 4/14/1998 7/1/2019
Expense Ratio: 1.01% 0.86%
Total Net Assets: $803.58 Million  (12/31/22)
Morningstar Category: Small Cap Growth
Benchmark Index: Russell 2000 Growth
Related Material:
   Fund Fact Sheet Q4 2022
   PM Commentary Q4 2022
   Summary Prospectus

FINDING PREMIER GROWTH COMPANIES

 

Portfolio Managers Jamie Cuellar and Bob Male discuss the foundation for the Buffalo Small Cap Fund investment strategy – finding companies that are rapidly growing and can benefit from long term trends.

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An actively-managed portfolio of smaller-capitalization, rapidly-growing companies that can benefit from positive, long-term trends remains an excellent way to exploit an inefficient market.

Bob Male, Co-Portfolio Manager

“I think what really differentiates us is our process, where we combine the top-down work of looking at trends provided with the bottoms-up fundamental research we do on each company.”
 
  ~ Jamie Cuellar, CFA

Listen to the Portfolio Managers discuss their Investment Philosophy

Morningstar Rating

       

Overall Morningstar Rating™ of BUFSX based on risk-adjusted returns among 576 Small Growth funds as of 12/31/22.

Investment Style
Fund Objective & Investment Philosophy

The investment objective of the Buffalo Small Cap Fund is long-term growth of capital. The Small Cap Fund normally invests at least 80% of its net assets in equity securities, consisting of common stocks, preferred stocks, convertible preferred stocks, warrants and rights of small capitalization (“small-cap”) companies. The Small Cap Fund defines small-cap companies as those that, at the time of purchase, have market capitalizations within the range of the Russell 2000 Growth Index.

The Fund managers seek to identify companies for the 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 attractive valuation, strong management, conservative debt, free cash flow, scalable business models, and competitive advantages.

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Performance (%)

As of 1/31/233 MOYTD1 YR3 YR5 YR10 YR15 YR20 YRSince Inception
BUFFALO SMALL CAP FUND - Investor0.8910.01-8.289.9311.6111.4210.2511.9611.67
BUFFALO SMALL CAP FUND - Institutional0.9510.02-8.1210.1011.7811.5810.4212.1211.84
  Russell 2000 Growth Index4.569.95-6.504.264.689.548.6410.17  6.02
  Morningstar U.S. Small Growth Index6.1910.67-13.811.643.958.908.28--
  Lipper Small Cap Growth Fund Index7.4110.36-8.377.428.2210.889.0610.19  7.27
  Morningstar Small Growth Category5.559.52-9.357.227.6910.559.1510.68  7.31
As of 12/31/223 MOYTD1 YR3 YR5 YR10 YR15 YR20 YRSince Inception
BUFFALO SMALL CAP FUND - Investor-0.67-30.01-30.016.8810.1510.918.9611.1411.28
BUFFALO SMALL CAP FUND - Institutional-0.66-29.88-29.887.0410.3111.089.1211.3111.45
  Russell 2000 Growth Index4.13-26.36-26.360.653.519.207.269.50  5.64
  Morningstar U.S. Small Growth Index1.75-33.31-33.31-1.782.668.426.76--
  Lipper Small Cap Growth Fund Index5.21-26.54-26.543.927.0910.457.599.50  6.87
  Morningstar Small Growth Category4.18-27.77-27.774.056.6010.207.8110.02  6.94

Year2013201420152016201720182019202020212022
BUFFALO SMALL CAP FUND - Investor44.15-6.55-4.466.2227.07-5.7840.9766.364.85-30.01
BUFFALO SMALL CAP FUND - Institutional44.36-6.41-4.326.3727.26-5.6441.1766.604.97-29.88
  Russell 2000 Growth Index43.305.60-1.3811.3222.17-9.3128.4834.632.83-26.36
  Morningstar U.S. Small Growth Index41.862.46-0.189.6123.77-5.6727.6043.52-1.00-33.31
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
BUFSX vs Russell 2000 Growth Index (As of 12/31/22)
Upside Capture127.67
Downside Capture99.20
Alpha6.59
Beta1.04
Sharpe Ratio0.22
Hypothetical Growth of $10,000
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

Portfolio Characteristics
(As of 12/31/22) 
 
# of Holdings79
Median Market Cap$2.06 B
Weighted Average Market Cap$2.85 B
3-Yr Annualized Turnover Ratio59.64%
% of Holdings with Free Cash Flow68.83%
Active Share89.92%
Top 10 Holdings
Name of HoldingTickerSector% of Net
Assets
CalixCALXTechnology3.12%
ICF IntlICFIIndustrials3.02%
Privia Health GroupPRVAHealth Care2.57%
MGP IngredientsMGPIConsumer Staples2.43%
DoubleVerify HoldingsDVTechnology2.28%
HealthEquityHQYHealth Care2.24%
Halozyme TherapeuticsHALOHealth Care2.19%
Evolent HealthEVHHealth Care2.07%
TransMedics GroupTMDXHealth Care2.03%
NV5 GlobalNVEEIndustrials2.03%
TOP 10 HOLDINGS TOTAL23.98%
As of 9/30/22. Top 10 Holdings for the quarter are not disclosed until 60 days after quarter end. Fund holdings are subject to change and are not recommendations to buy or sell any securities.
Sector Weighting
As of 12/31/22. 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.
Market Capitalization
As of 12/31/22. Market Cap percentages may not equal 100% due to rounding.

Management

Jamie Cuellar, CFA
Portfolio Manager

31 Years of Experience

 View full bio

Bob Male, CFA
Portfolio Manager

37 Years of Experience

 View full bio

Commentary

CAPITAL MARKET OVERVIEW

(As of 12/31/22) — Capital markets rallied modestly in the 4th quarter as the S&P 500 Index gained 7.56%, the only positive quarter for 2022. Cooler inflation readings, resilient consumer spending, and better-than-expected corporate earnings buoyed markets during the first two months of the 4th quarter before pulling back in December. Much of the focus remains on the path of future interest rates, recession fears, and the economic and market impact those events may generate in 2023.

Despite the 4th quarter advance, the stock market recorded its worst calendar year since 2008, with a decline of -18.11% for the S&P 500 Index, and a loss of -32.54% for the growth-oriented and technology-heavy Nasdaq Composite Index. Large cap technology stocks and the more interest-rate sensitive assets suffered the most, while value stocks outperformed. In the end, nine of the S&P 500 Index’s 11 economic sectors declined. Energy stocks were the bright spot, recording a gain of 65.72% for the sector while Utilities eked out a gain of 1.57% in 2022.

The damage wasn’t isolated to the stock market as the investment-grade bond indices suffered double-digit losses for the year as well. In fact, a traditional balanced investment portfolio of 60% stocks and 40% bonds suffered the 4th worst drawdown in the past 100 years.

Recapping quarterly results, the broad-based Russell 3000 Index advanced 7.18% in the period. Value stocks significantly outperformed growth stocks to close out 2022, as the Russell 3000 Value Index returned 12.18% versus a return of just 2.31% for the Russell 3000 Growth Index. Relative performance was mixed going down in market cap size as small caps advanced less than large caps in the quarter, while mid cap stocks outperformed both large and small caps. Larger cap stocks returned 7.24%, as measured by the Russell 1000 Index, compared to the smaller cap Russell 2000 Index return of 6.23%, while the Russell Midcap Index produced a return of 9.18% in the quarter.

PERFORMANCE COMMENTARY

(As of 12/31/22) — The Buffalo Small Cap Fund (BUFSX) produced a return of -0.67% for the quarter, a result that trailed the Russell 2000 Growth Index return of 4.13%. Disappointing stock selection was responsible for most of the relative underperformance, but the Fund’s sector allocation impact also weighed on results due to our typical underweight in Energy and Consumer Staples, two of the strongest performing benchmark sectors during the quarter.

The Fund’s results in the Technology area and Industrials were the largest detractors from performance results from a sector breakdown perspective. Within Technology, the portfolio experienced weakness among IT Service holdings including DoubleVerify and Grid Dynamics. Stock selection in Software also lagged on declines by BigCommerce Holdings and Varonis Systems, Inc. Performance within the portfolio’s Industrials exposure weighed on overall results due to declines from Advanced Drainage Systems and PGT Innovations. Both stocks performed poorly as higher interest rates are beginning to impact the companies’ construction markets.

TOP CONTRIBUTORS

Partially offsetting the lagging areas above was stronger stock selection within Health Care, particularly among the portfolio’s health care equipment and biotechnology companies. TransMedics Group was once again a top contributor to Fund performance as shares advanced nearly 50% during the period. The company’s innovative Organ Containment System (“OCS”) and National OCS Program (“NOP”) continued to see rapid uptake translating to accelerating revenue growth of about 378% year-over-year.

Establishment Labs Holdings, Inc. and Inspire Medical Systems, Inc. that also operate in the health care equipment area were strong performers in the quarter. Within biotechnology, Halozyme Therapeutics advanced over 40%.

TOP DETRACTORS

Overall, the largest detractors from performance results during the quarter were Privia Health and Palomar Holdings. Privia, a technology-driven platform that enables medical groups, health plans, and health systems transition to value-based care arrangements, performed poorly during the quarter due to sector rotation within Health Care. Also, Privia’s multiple compressed during the period as investor speculation of an imminent buyout of the company waned. Palomar, a specialty insurance company, underperformed during the quarter as its reinsurance costs could potentially increase due to Hurricane Ian in Florida. Additionally, the company’s 3rd quarter earnings were negatively impacted by higher attritional losses. Our view of both companies remains favorable.

OUTLOOK

(As of 12/31/22) — The direction of the market overall will likely continue to depend on inflation’s trajectory and the amount of economic damage caused by higher interest rates. The inflation picture continues to ebb and flow. While we are seeing a decline in logistics costs, shipping rates, and some commodity prices, component shortages continue to persist. Generally, it seems price increases are moderating but the sustainability of this moderation is questionable.

While the Federal Reserve has already increased interest rates by 425 basis points, market expectations forecast another 50 to 75 basis point increase in this tightening cycle. In response, there has been a growing chorus for the Federal Reserve to slow its pace of tightening and allow previous hikes to make their way through the economy. Meanwhile, global economies continue to slow, especially in Europe where energy prices remain high. While many companies have already lowered financial guidance for the year, we could be in store for another earnings season of decreasing estimates which may possibly bring more market volatility.

Throughout 2022, small cap stocks re-rated for the prospect of a significant slowdown in economic growth in 2023. As a result, we are taking advantage of stocks that are oversold by our analysis. At the same time, we are being cautious with unfamiliar management teams and their ability to navigate a less predictable economy and market volatility. Portfolio positioning is fairly defensive within Technology, with a focus on a steadier IT Services industry and the Communications Equipment industry, which has unique demand drivers due to government subsidies.

The portfolio continues to be underweight Semiconductors and Software relative to the benchmark. We’ve added slightly to Energy sector exposure with higher quality energy-related companies, but the portfolio remains underweight relative to the benchmark. Larger positions within the Fund continue to be companies with recurring revenue streams, or those with strong demand and good visibility into future earnings.

As always, we believe all of our investments could benefit from long-term growth trends and trade at attractive valuations – the cornerstone of our investment process. We thank you for your continued support.

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. Earnings growth is not representative of the fund’s future performance.

Literature

General Account
Forms
Investor
Class
Institutional
Class
Both
  New Account Application
  New Account Application - Entity
  Change or Add Account Details
  Cost Basis Method Election
  Power of Attorney
Individual Retirement Account (IRA) Forms
  IRA Account Application
  IRA Beneficiary Addition / Change
  IRA Required Minimum Distribution (RMD)
  IRA / Qualified Plan Distribution Request
  IRA Transfer
Coverdell Education Savings Accounts (ESA) Forms
  Coverdell ESA Application
  Coverdell ESA Distribution Request
  Coverdell ESA Transfer
Retirement Information
  Retirement Savings Options for Individuals

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.

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 Small Cap Fund (BUFSX) received 4 stars among 576 for the 3-year, 4 stars among 530 for the 5-year, and 3 stars among 399 Small Growth funds for the 10-year period ending 12/31/22, based on risk-adjusted returns.

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. ©2022 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.

Diversification does not assure a profit, nor does it protect against a loss in a declining market.

Active investing has higher management fees because of the manager’s increased level of involvement while passive investing has lower management and operating fees. Investing in both actively and passively managed mutual funds involves risk and principal loss is possible. Both actively and passively managed mutual funds generally have daily liquidity. There are no guarantees regarding the performance of actively and passively managed mutual funds. Actively managed mutual funds may have higher portfolio turnover than passively managed funds. Excessive turnover can limit returns and can incur capital gains.