3 / 5 Stars
3 4 4 4 2
Zacks Investment Research
Standard & Poor's
4 / 5 Stars
#97 in Large Growth
U.S. News evaluated 464 Large Growth Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
The fund has returned 26.95 percent over the past year, 14.61 percent over the past three years, 18.46 percent over the past five years, and 8.43 percent over the past decade.
|Trailing Returns||Updated 06.30.2014|
|Year to date||5.0%|
|3 Years (Annualized)||14.6%|
|5 Years (Annualized)||18.5%|
|10 Years (Annualized)||8.4%|
The Buffalo Growth fund, like many of its peers, invests in some of the largest and most well-known U.S. companies. But manager Clay Brethour believes many of the fund’s peers will slowly go the way of Buffalo Growth and choose only those U.S.-based companies that have growing profits in foreign markets.
As of July 03, 2014, the fund has assets totaling almost $623.74 million invested in 60 different holdings. Its portfolio consists of large-cap, U.S. growth stocks that derive a large and growing portion of their revenue from foreign markets, especially emerging ones.
By focusing on companies with growing foreign profits, the fund provides exposure to both the stable U.S. large-cap universe and the fast-growing economies of Asia and Latin America.
“When people ask us what’s our view from a general economic perspective, we try to invest in companies that, given their secular growth prospects, will grow regardless of what economic conditions are going to be,” said Brethour. “For example, in this last quarter, people were scared of Europe’s growth prospects, but we had companies that were growing their business 20 percent in Europe.”
One of those companies is dental equipment maker Align technologies, which Brethour lauded for revenue growth even in 2008’s horrible business environment. Although large-cap growth funds haven’t been on a hot streak over the past three years, the Buffalo Growth fund’s loyalty to non-cyclical, steady companies has put it firmly in the top performance quartile among its peers. The fund has returned 26.95 percent over the past year and 14.61 percent over the past three years.
This is not to say that management sidesteps macroeconomic forecasts altogether. “We focus on finding companies that leverage our trends—[which are] long term in nature, not fads—or instance, aging demographics and the emergence of the middle class,” Brethour said.
Since its 1995 inception, when it was called Buffalo USA Global, the fund has been one of the better-performing funds in the category. It has produced a fifteen-year annualized return of more than 8 percent. The fund has returned 18.46 percent over the past five years and 8.43 percent over the past decade.
The fund owns stocks of mostly large-cap companies and conglomerates that earn at least 40 percent of their revenue abroad. “The companies we like tend to be leaders in their markets that can extend their competitive advantage across borders to serve large or fast-growing opportunities at home or abroad,” co-manager Clay Brethour said. Typically, the fund holds a company for about three years, implementing a low turnover strategy to reduce transaction costs.
Because the fund sticks to U.S. growth stocks that derive a large share of their revenue from foreign markets, it has overweight positions in information hardware companies, like MKS Instruments and Qualcomm, and industrial materials companies, such as 3M and Fluor—two industries better able to grow their exports. While Baker Hughes and Schlumberger are the fund’s second and third largest holdings, it is generally underweight in the energy sector.
Brethour added: “We believe at this fund that we’re the most capitalistic society in the world, and therefore our companies have to be very productive in providing products or services. We just believe that instead of trying to find the next [foreign version of] McDonald’s or the next Kentucky Fried Chicken or Apple, it makes more sense to invest in U.S. companies because those brands are going to be demanded throughout the world.” He points out that in 2006, 30 percent of Yum Brand’s profits came from emerging markets. By 2009, Yum Brands, the owner of Taco Bell, KFC ,and Pizza Hut had raised its emerging markets revenue to 46 percent of the total.
Role in Portfolio
Morningstar recommends this fund for a core holding.
Kent Gasaway has co-managed the fund since its inception in 1995. Two other longtime co-managers left the fund in the early 2000s and were replaced by Clay Brethour and Dave Carlsen. Management has a horizontal relationship, giving co-managers equal weight in investment decisions. Kent Gasaway also manages Buffalo’s Mid Cap and Small Cap funds, and Carlsen and Clay also manage Buffalo’s Science & Technology fund.
Buffalo Growth Fund has an expense ratio of 0.91 percent.
The fund’s compact portfolio allows for stock-specific risk, according to Morningstar, because the collapse or downturn of a single company could have a much larger effect on the fund’s portfolio than a fund that holds a large basket of stocks. The fund’s overweight positions in information hardware and industrial materials also gives it a larger sector risk.