Investable Theme: Opportunities increasing for small caps tied to U.S. defense spending

Ivy Small Cap Growth Fund
10.16.18

An increase in spending by the U.S. Department of Defense over the next several years is providing opportunity for a number of small-cap companies offering technology and other services to the government.

The U.S. defense budget is transitioning from a period of decline to a period of multi-year growth. 2013 was the inflection point in the overall budget and we think this trend should continue as the past two “up cycles” have lasted 10+ years each. Technology and cyber spending within the budget is growing faster than the overall budget. In addition, the competitive environment within Federal IT Services is also improving as many of the large prime contractors are either exiting the business or de-emphasizing this area, which is allowing smaller companies to gain market share. As a result, we are seeing record backlogs (which represents orders) for small-cap IT service companies.


Investable Theme in Action: Ivy Small Cap Growth Fund

The Ivy Small Cap Growth Fund portfolio management team believes the increased spending in the U.S. defense budget is just one of a number of tailwinds helping today’s small-cap companies in the technology and services sector.

A closer look at the Ivy Small Cap Growth Fund

Below are three examples of technology and services companies that we believe may benefit from increased U.S. defense spending.

Booz Allen Hamilton Holding Corporation (BAH)

Mercury Computer Systems Inc. (MRCY)

Woodward, Inc. (WWD)


Past performance is not a guarantee of future results.The opinions expressed are those of the Fund’s portfolio managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through September 2018, are subject to change based on market conditions or other factors, and no forecasts can be guaranteed. The holdings discussed are for illustrative purposes only and are not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment return and principal value will fluctuate, and it is possible to lose money by investing.

BAH: 1.7%, MRCY: 2.1%, WWD: 1.6% of net assets as of 09/30/2018. Holdings are for illustrative purposes only to demonstrate the Fund’s security selection process. This information contains the opinions of the firm, which are subject to change without notice and should not be considered as investment advice or a recommendation to purchase or sell a specific security. It should not be assumed that any securities holdings discussed will prove to be profitable or that investment decisions we make in the future will be profitable.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. The Fund may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Fund’s performance that may not be replicated in the future. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.