As seen in a How to Find Pure Play Approaches to Drone Technology webinar, a lot goes on behind the scenes when building an exchange-traded fund (ETF) — in this case, the REX Drone ETF (DRNZ). The majority of investors are only privy to the final product by way of a ticker symbol attached to a fund description with accompanying marketing material from a fund provider. The webinar offered a window into the ETF manufacturing process — something beyond what investors can simply get in a factsheet.
In the webinar that was recapped in this article, REX Shares COO Scott Acheychek joined TMX VettaFi Head of Research Todd Rosenbluth to discuss the drone industry, and what ultimately led to the creation of DRNZ. Rosenbluth crafted some pointed questions to Acheychek regarding the process behind creating DRNZ. The two also addressed questions on how to use the ETF in a portfolio. Below are said questions and subsequent answers from the Rosenbluth-Acheychek exchange.
The Drone Opportunity
Rosenbluth: What’s the one big takeaway you’d want us to remember about the drone opportunity?
Acheychek: Drones have moved from these niche gadgets to mission critical tools across defense, infrastructure, energy, agriculture, and public safety. We see the opportunity not being tied to one headline or one company, but to a broad, global ecosystem of hardware, software, and services. This is a long term structural theme driven by adoption curves rather than a short-term trade on any single conflict, product cycle, or company.
Why a Drone ETF?
Rosenbluth: Why did REX decide to get into launching a thematic ETF? It seems quite different from the rest of the offerings from REX.
Acheychek: The common thread across REX is giving investors access to express strong views — whether that’s leverage, income, crypto, or now drones. This is another area where we felt strong. We saw the story emerging and quite honestly couldn’t believe there wasn’t a pure play product already in the market. Drones very much fits our philosophy. It is a focused and thoughtful index design collaborated with our partners here at VettaFi. When I think of drones as a theme, I think less about chasing a buzzword and more about building a disciplined, rules based way to access a growing, hard-to-replicate niche.
The REX team and I will always pursue access structures, and there is nothing better than doing a first-of-its-kind of product. We are first here on drones, but we have had many firsts. This includes an index covered call ETF focused on selling calls on stocks rather than at the index level to allow for more yield and more upside. That whole 2x craze in single stocks began over a year after the first leveraged single stock. There were ETFs that did 1.5 Tesla or 1.25 Nvidia. We dug in and figured out how to get 2x exposure under regulatory rules. So we were first to 2x on many of the leverage single stocks you see out there today.
Beyond Defense
Rosenbluth: You mentioned that this is a pure play drones ETF, but I’ve seen drones in some defense-related ETFs.
Acheychek: Yes, drones are in some defense-related baskets for sure. They are also in some space ETFs too, and probably emerging tech, as well as some others. We feel quite strongly that drones are more than military plays. This includes military and defense, but we want to include industrial applications such as agriculture, construction, public safety, and critical services. Again, the drone story isn’t going anywhere. Its broad-based, it’s scaling before our eyes, and it’s global. If I’m making an allocation to drones, I’m not so sure I want to smother that with tank manufacturers, ship makers, and others.
Using DRNZ in a Portfolio
Rosenbluth: Where do you typically see advisors funding an allocation to an ETF like DRNZ? From traditional sector sleeves, or from an existing thematic bucket?
Acheychek: Great question, and one we get all the time. Most advisors either carve out a small sleeve from existing and more traditional sector exposures like industrials/defense/tech or they fund it from a broader thematic/satellite allocation. Or, we just pull down a smidge from a larger equity bucket. It is typically positioned as a modest, high-conviction satellite-sized allocation so it can matter, but not so large that volatility drives the overall plan. Keep in mind this has some very small companies and is very international. Also, some advisors who were early on this drone trend may use DRNZ to replace a single stock exposure or a handful of drone stocks they’ve already allocated to in order to have a more diversified drone allocation.
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vettafi.com owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for DRNZ, for which it receives an index licensing fee. However, DRNZ is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of DRNZ.
