New Drone ETF Launches
There seems to be an endless array of unique and somewhat quirky exchange-traded funds (ETFs) making their debut this year. The Rex Drone ETF (DRNZ), which started trading on October 29th, presents a fresh alternative to the usual Magnificent 7 shares that often dominate the conversation.
This ETF appears to genuinely deliver on its promise, focusing on a niche market that isn’t typically cornered by those bigger, multi-trillion dollar firms.
So, what exactly is DRNZ all about?
The REX Drone ETF gives investors targeted exposure to companies that are pioneering advancements in both defense and commercial drone applications. Unlike traditional aerospace and defense ETFs, DRNZ zeroes in specifically on drones and UAVs, addressing a range of growing uses, from military reconnaissance to commercial deliveries, agricultural applications, infrastructure checks, and AI-driven industrial automation.
In the sports world, they say it’s a “copycat league,” but that doesn’t really apply here. For now, DRNZ is steering clear of the usual players in the drone market. While Palantir (PLTR) is a major stock, it only holds a meager 3% position in DRNZ.
As an index ETF, DRNZ doesn’t respond to public sentiment. Its management is tied to the VettaFi Drone Index and undergoes quarterly reviews for any necessary changes to its index composition.
During these reviews, existing holdings are also adjusted to align with the index weights. Consequently, stock prices can spike around rebalancing time, sometimes making up a significant percentage of the fund’s assets.
How Dedicated is DRNZ to Drones?
Even though DRNZ is relatively new, it stands out as one of the few drone-specific ETFs available on trading platforms.
The fund categorizes its holdings into two main groups: true drone-centric companies and those that are “drone-like.” The former comprises at least 80% of DRNZ, with these companies deriving a minimum of half of their revenue, assets, or profits from drone operations.
No direct competitors exist for DRNZ with a proven track record. The aerospace and defense ETFs offer a substitute, although they were well-established before drones became mainstream. The closest contender is the S&P Aerospace & Defense SPDR (XAR), which has been available for 14 years. While this ETF holds promising stocks, they’re not particularly cheap, with a P/E ratio of 32.
With the sector booming, that’s not really surprising. You can actually see significant growth in the industry over a five-year period.
A Glimpse into the Future
Will we ever revisit thoughts of flying saucers? The nostalgic vibes of The Twilight Zone, Star Trek, and Star Wars come to mind, especially with the recent excitement over drone technology moving toward mainstream use.
With DRNZ and its newly launched ETF, investors now have the opportunity to engage with this technology by investing in a basket of stocks, rather than sifting through to find individual winners.
