3 / 5 Stars
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Zacks Investment Research
Standard & Poor's
3 / 5 Stars
#223 in Large Growth
U.S. News evaluated 468 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 24.31 percent over the past year, 12.20 percent over the past three years, 21.24 percent over the past five years, and 6.51 percent over the past decade.
|Trailing Returns||Updated 01.31.2014|
|Year to date||-2.0%|
|3 Years (Annualized)||12.2%|
|5 Years (Annualized)||21.2%|
|10 Years (Annualized)||6.5%|
The Buffalo Large Cap fund is an enigma. It’s a large-cap equity fund that appears to be largely succeeding without following one of management’s own objectives: to be more concerned with holding up in down markets than beating peers in up markets.
As of February 05, 2014, the fund has assets totaling almost $31.17 million invested in 43 different holdings. Its portfolio consists of mostly U.S. large-cap growth stocks, with a sampling of mid-cap stocks thrown into the mix.
Management invests in cheap but growing companies as part of a protective strategy designed to limit downside risks, but the fund actually does much better in high-flying bull markets than bear markets, compared with its peers. “Typically, in a very bull market we’ll underperform a little bit, and in a bear market we’re going to outperform a little bit,” says co-manager Elizabeth Jones. But a look at annual returns doesn’t bear this out. In the bear markets of 2001, 2002, and 2008, and the flat markets of 2005 and 2007, the fund ranked in the bottom half of funds in its Morningstar category. In the bull markets of 2003, 2006, and 2009, however, the fund beat—and in some cases trounced—its competition. Morningstar reassigned the fund from the large-cap blend to the large-cap growth category in 2006, when the fund began focusing on smaller companies with larger growth expectations.
Management fills out its compact roster of stocks by first screening stocks through a complicated list of 25 trends, many of which involve consumption and demographic information, then controlling for cheaper valuations. The fund’s three co-managers then look for consensus based on their trust in company management and growth forecasts.
Forest Laboratories was the fund’s largest new position in 2010. “It had an $8 billion market cap producing around $1.2 billion in free cash flow a year,” Jones says. “The reason the price of the stock was so cheap was because they were losing patent protection on one product, [Lexapro]. But we felt that this pipeline is going to make up for that loss and, in effect, they’re going to generate enough cash almost to make up their whole [current] market cap over the next couple of years.” The fund has returned 24.31 percent over the past year and 12.20 percent over the past three years.
The fund has been overweight in the healthcare sector for quite a while, since this sector has remained cheap compared with its historical average. As of the end of the first quarter, the fund's trailing 10-year returns landed it in the top half of Morningstar's large growth category. The fund has returned 21.24 percent over the past five years and 6.51 percent over the past decade.
The fund’s objective is long-term capital appreciation.The fund normally invests 80 percent of its assets in U.S. stocks and up to 20 percent in foreign stocks.
Role in Portfolio
Morningstar calls this fund a “supporting player,” because its concentrated portfolio of growth stocks can make for more volatility than its peers.
The fund is run by Robert Male, Grant Sarris, and Elizabeth Jones. Male and Sarris have been with the fund since the early part of the decade and bring their varied knowledge, from additionally running the successful Buffalo Small Cap fund, to the table. Jones, who practiced as an MD before joining the company in 2003 and the fund’s management in 2007, offers expertise in the healthcare industry.
Buffalo Large Cap Fund has an expense ratio of 0.97 percent.
The fund’s large healthcare and information hardware sector bets give it more risk than otherwise, as does its compact portfolio of mainly large-cap growth stocks.