Moderate-allocation funds strike a nice balance between growth and income, offering upside as markets rise and providing current income. This fund puts an unusual twist on a category that includes many cookie-cutter options, seeking income from undervalued convertible-preferred stocks and bonds and high-quality equities. This approach entails a bit more risk, but the fund should compensate investors well over the long haul.

Buffalo Balanced (BUFBX) takes a slightly different approach to moderate-allocation investment. Income-producing value plays make up the majority of its equities portfolio and typically yield around 3 percent. Most have increased their dividend at least every other year and boast solid cash flow, improving earnings and generous stock repurchase programs.

Management also screens for names with leading market positions in growing industries, sustainable margin structures, manageable balance sheet leverage and improving credit quality.

Examples include Intel Corp (NSDQ: INTC), which has met these criteria since 2004; The Coca-Cola Company (NYSE: KO), which has raised its dividend every year for the past decade; and Kraft Foods (NYSE: KFT), which has increased its payout every year since becoming an independent company in 2001. And given that Buffalo’s fixed-income team focuses primarily on high-yield debt, manager John Kornitzer leverages the expertise of the firm’s analysts by investing in convertible bonds and preferreds, as well as high-yield bonds rated BBB or below.

This focus on the high-yield segment was a liability in 2008, when the credit crisis and subsequent flight to quality saw the fund lose 29.5 percent of its value and underperform 60 percent of its peers. But last year was a different story: The fund gained 31 percent and landed in the top 11 percent of its category. Not only did management take advantage of the broad selloff to buy into high-quality names at historically low valuations, but signs of an economic recovery and investors’ willingness to take on additional risk were also a boon.

At present, equities account for roughly 55 percent of investable assets, while fixed-income positions account for 35 percent of the portfolio. A 10 percent cash position rounds out its holdings. Although the fund invests in a wide range of industries, consumer, health care and energy are its three biggest sector allocations.

Management is particularly bullish on its energy names, as it expects higher oil and gas prices to drive dividend growth. Holdings range from the common stocks of super oils Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS.A) to convertible bonds issued by small regional refiners such as United Refining Company. This is hardly a recent development; Kornitzer has always had a penchant for energy companies.

The fund’s portfolio also includes a number of oddball holdings, including convertibles issued by the movie production outfit Lions Gate Entertainment (NYSE: LGF), Carriage Services (NYSE: CSV), which operates more than 130 funeral homes and cemeteries throughout the US, and casino operator Isle of Capri Casinos (NSDQ: ISLE).

Despite the unusual nature of the fund’s portfolio, it is reasonably well-diversified across a variety of companies that generate fairly stable cash flows and boast relatively liquid balance sheets. And in the event of a market correction, the fund’s value bent provides a degree of downside protection.

Kornitzer has largely avoided emerging-market bonds, collateralized debt obligations, and most debt associated with leveraged buyouts; management clearly distinguishes between high yield and high risk. Yielding over 3.5 percent, Buffalo Balanced offers excellent growth prospects while generating a respectable level of income.

A focus on total returns has benefited the fund in both good times and bad; even after the debacle of 2008, its 10-year returns place it in the top 10 percent of its category and its five-year returns place it in the top 6 percent. As is stands, the fund should be able to maintain that performance for years to come.