Robert Male's Buffalo Small Cap Fund outperformed 97 percent of competing mutual funds last year by buying shares of companies that cater...

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Robert Male’s Buffalo Small Cap Fund outperformed 97 percent of competing mutual funds last year by buying shares of companies that cater to the baby-boom generation and their teenage children.

The $2 billion fund has more than half of its assets in consumer and health-care companies, including Pharmaceutical Product Development, which conducts research for drugmakers, and Inamed, a maker of breast implants.

“Baby boomers are growing faster than any other portion of the population,” Male said from his office at Kornitzer Capital Management in Shawnee Mission, Kan. Male oversees the fund with Kent Gasaway and Grant Sarris.

The Buffalo Small Cap Fund rose 29 percent in 2004, outpacing all but three of 222 competing funds tracked by Bloomberg and the 9.2 percent advance of the Nasdaq composite index, a U.S. benchmark for shares of smaller-sized companies.

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The fund climbed at an annual rate of 17 percent during the past five years, compared with the average 2.3 percent gain of funds with similar investment objectives.

Male’s fund trailed the 37 percent rally by the $21 million Pacific Advisors Small Cap Fund, which ranked as the top performer in the category last year. The Pacific Advisors fund, run by George Henning, had a larger proportion of its assets invested in shares of industrial and energy companies.

The Buffalo Small Cap Fund, started in 1998, holds shares of 71 companies, with the 10 largest accounting for about 24 percent of assets as of Dec. 31.

The fund’s assets have more than doubled since the end of 2002 when it totaled $770 million. Now, Kornitzer accepts only new investments that are made directly with the firm as opposed to through brokers.

The fund tends to make concentrated bets and that can be a risky strategy, said Gareth Lyons, an analyst at Morningstar in Chicago, an industry research firm.

The fund fell almost 26 percent in 2002, compared with the Nasdaq’s 32 percent drop.

Male credits his fund’s returns with his team’s strategy of buying companies positioned to benefit from one of 23 trends it has identified, including demographics.

Baby boomers, those born between the end of World War II and 1964, accounted for about 28 percent of the U.S. population in 2000, according to the Census Bureau. People under the age of 18 made up 26 percent of the population in 2000.

“You can project out demographic trends, but you cannot tell me what oil prices are going to do,” said Male, who has managed the fund since it opened almost seven years ago.

Male invests in health-care firms such as Elan and Inamed, and in retailers including American Eagle Outfitters and Abercrombie & Fitch that mainly cater to teenagers.

Shares of Elan, Ireland’s biggest drugmaker, more than tripled in the past year. The Dublin-based company recently said it won U.S. approval for Prialt, a painkiller derived from sea snails.

“They bought Elan before it popped,” Lyons said.

Inamed’s stock rose 34 percent last year amid investor optimism that the Santa Barbara, Calif.-based company will succeed in selling the first silicone-gel breast implant in the U.S. in 12 years. Shares of Pharmaceutical Product Development of Wilmington, N.C., the fund’s largest holding, climbed 35 percent in the past year.

The Buffalo fund’s strategy of following trends also has led to investments in shares of pet suppliers and educational companies, such as Corinthian Colleges, Male said.

Corinthian is among the for-profit education companies that stand to benefit from President Bush’s recently announced proposal to boost the maximum Pell grant by $500 over the next five years. Pell grants provide financial aid to low-income students.

Male’s team added shares of Central Garden & Pet, the largest U.S. distributor of lawn, garden and pet products, in July.

“As the baby boomers age and their kids flee the house, pets become a bigger part of their lives,” he said. “It’s a demographic bet.”