Drone stocks and exchange-traded funds, or ETFs, are doing well overall in 2026, with the benchmark S&P Kensho Drones Index returning 14.3% as of July 27 and 23.3% over the past 12 months by market price. There’s also little doubt that growth in drone funds has slowed recently, with the same index losing 3.3% in July.
That’s primarily due to rising profit-taking from long-haul drone investors and from company-specific problems, like AeroVironment Inc.’s (ticker: AVAV) recent accounting errors that required a restatement and like Red Cat Holdings Inc.’s (RCAT) discounted public stock offering that failed to impress. Beyond that, there’s been little deterioration in the long-term drone market, although the back-and-forth in the U.S.-Iran conflict is causing some industry volatility.
“The Iran war has to be a defining factor, and Iran did something more consequential than lift sentiment,” says Anupam Satyasheel, founder and CEO of Occams Advisory, a professional services and applied intelligence firm. “It converted drones from a procurement category into a consumption category.”
The war that began Feb. 28 led to thousands of Iranian drones deployed across the region, and Iranian systems are now straining air defenses across Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates and Jordan. “The strategy is explicitly economic, forcing wealthy states to spend expensive interceptors on inexpensive targets until the math breaks,” Satyasheel says.
With drone ETFs at a discount right now, there’s a case to be made that market investors shouldn’t let a good opportunity pass.
“Most of this year’s AI capital has concentrated in large language models and the chipmakers behind them, while drones, which are really a form of ‘physical AI’ combining autonomy, sensors, edge computing and real-world data collection, haven’t gotten the same multiple expansion,” says Arya Taghdiri, founder of Blackacre Wealth, a fee-only fiduciary investment advisor based in Beverly Hills, California.
That gap is arguably an overlooked opportunity, Taghdiri says.
Yet he’d caution any investor against reading this as a simple “buy the dip” story. “Most pure-play drone companies are small-cap, thinly profitable or unprofitable, and dependent on lumpy government contracts, so the sector carries real volatility and valuation risk alongside the upside,” Taghdiri notes. “This is a space for selective, sized-appropriately exposure, not a core holding for a conservative portfolio, and definitely not a substitute for proper diversification.”
With the drone industry in a moderate slump right now, what are the best-performing ETFs that could still reward investors? Here’s a look at four drone ETFs to buy – just remember that most of these funds are very small and volatile right now:
REX Drone ETF is one of the best pure plays, focused on military, commercial, software and component makers. The fund, which is in a ditch at the moment but could make a comeback in the long term, holds companies like AeroVironment, Red Cat, Kratos Defense & Security Solutions Inc. (KTOS) and others across the unmanned aerial vehicle (UAV) ecosystem. It accumulated gains in the first quarter before the industry tilted downward (DRNZ is down 2.6% year to date and down 18.2% in the past three months).
When the fund is running on all cylinders, it’s typically due to its diversification across defense and commercial UAVs and a robust liquidity relative to its industry peers. For the long haul, there’s also a lot to like about DRNZ. For one, the drone industry has access to the deep pockets of Uncle Sam. The U.S. government has earmarked $54.6 billion for the Pentagon’s Defense Autonomous Warfare Group (DAWG) in fiscal year 2027. (DAWG is the group that’s generally responsible for unmanned systems, artificial intelligence and autonomous drone swarms.)
The drone industry also has a solid foothold in Europe, where NATO has approved about $40 billion in spending across the continent over the next half-decade. Use of drones is also rapidly expanding outside the defense sector, with companies like Amazon.com Inc. (AMZN) using drones to deliver packages and Zipline, the zero-emissions autonomous medical and retail company, branching out into major urban centers like Houston and Phoenix.
“The REX Drone ETF is the first U.S.-listed pure-play fund that tracks the VettaFi Drone Index at a 0.65% expense ratio, screens for companies actually deriving revenue from drones and took in $11.28 million of inflows in the first week of July,” Satyasheel notes.
Defiance Drone & Modern Warfare ETF (JEDI)
Debuting in September 2025, this fund is a variation of a drone ETF, with an additional focus on other defense-related technology businesses. In doing so, JEDI has set strict parameters for what’s in the fund, with a directive that the fund must be composed of companies that earn at least 50% of their revenues from modern warfare technologies.
That list includes military drones; unmanned aerial, ground and naval systems; AI-driven military software; advanced air mobility/eVTOL aircraft; and space defense technology, among other defense channels. The fund also has a futuristic vibe, as its lineup focuses more on tomorrow’s battlefield than last week’s defense technologies.
That makes good sense, as it’s no secret that companies tied to autonomous technologies and air defense are primed to leverage burgeoning government defense budgets. JEDI certainly fits the bill there. Current holdings include major drone names such as Unusual Machines Inc. (UMAC), Red Cat Holdings, Ondas Inc. (ONDS) and AeroVironment, among others. JEDI’s managers are betting that the fund’s structural shift to defense stocks will pay off for decades.
There is some downside risk with JEDI, as many of its component companies reside in the small-cap, early-stage, pre-profit realm, where the pathway to success is a long one. Investors don’t seem to mind. Through July, JEDI surpassed $138 million in assets, indicating a rapid pace for a niche thematic ETF. JEDI’s 0.69% expense ratio is higher than a plain-vanilla S&P 500 ETF, but it’s fairly typical for a specialized thematic ETF focused on an emerging industry that’s in demand, now and in the future.
“JEDI is also useful as a barometer, as a holding,” Satyasheel says. “It rallied 12% on the single day the Pentagon drone equity news broke, which tells you how much of this sector’s price is about policy headlines.”
Global X Defense Tech ETF (SHLD)
At $7.1 billion in assets, this sizable defense fund provides drone investors exposure to 50 companies well set to leverage adoption and use of global defense technology, and drone companies are featured on its priority list.
While the fund’s -1% year-to-date performance is tepid, its potential for powerhouse growth is solid. Aside from drone companies, SHLD also makes room for a wide variety of defense industry companies positioned to take advantage of rising public- and private-sector spending in high-growth areas like cybersecurity, aerospace, defense hardware and artificial intelligence applications for defense.
The fund holds positions in drone industry mainstays like AeroVironment, Kratos Defense, Australia-based DroneShield Ltd. (DRO.AX) and Red Cat, while also holding keystone positions in RTX Corp. (RTX; formerly Raytheon), General Dynamics Corp. (GD) and Lockheed Martin Corp. (LMT). Its top 10 holdings represent about 61% of the fund.
SHLD investors must know that the ETF is large-cap dominated, with 87% of the fund loaded with big industrial names, leaving only 13% for growth-oriented stocks. If you’re looking for a defense-themed ETF loaded with stable companies, SHLD should close the deal. If it’s pure growth you’re after, it’s worth a look elsewhere, possibly JEDI or DRNZ.
“SHLD isn’t a pure drone ETF, but that is partly the advantage: It spreads risk across autonomy, robotics, cybersecurity, AI and advanced defense hardware instead of forcing investors to bet on one early-stage manufacturer,” notes Christopher Uhl, host of the “How to Trade Stocks and Options Podcast.”
Corgi Drones & Urban Air Mobility ETF (BZZ)
Launched on May 6 and issued by Corgi Funds, BZZ is a brand-new industrial drone ETF with not much of a track record. But for investors, BZZ represents one of the most focused ways to invest in the civilian side of the drone revolution. While it does include defense-related companies, its investment thesis is much more expansive than just military spending. The fund invests across the air vehicle ecosystem that should change how people and goods move through low-altitude airspace, with as much a focus on electric air taxis or air traffic management systems as on drones or defense.
Corgi has also taken a big step away from the pack with the fund’s actively managed model, which gives fund managers the flexibility to add promising companies before they become widely known, curb exposure when valuations become unwieldy, and react to new FAA regulations, technological breakthroughs and government-contract spending news as they occur.
The fund also offers a low expense ratio of 0.35%, which should attract value-minded investors. That said, the fund is nascent, with roughly $3 million in assets under management. Consequently, while BZZ provides one of the most comprehensive and relatively low-cost ways to invest in drone technology, note that the fund’s short track record and lower asset base mean it should occupy only a small portion of your portfolio.
Should You Invest in Drone ETFs Now?
For investors who see autonomous technologies as already a large part of the global economy but don’t want to rely on a handful of individual companies, diversified drone, aerospace and defense ETFs should be on their investment shopping list. The biggest opportunities rarely come from buying sectors that are generating the loudest headlines. “For most investors, I’d suggest drone ETF exposure as a small allocation within a diversified portfolio rather than a standalone bet,” Taghdiri says. “The growth story is real, but so is the volatility.”
Other experts say investors haven’t seen the best that industry stocks and funds can do yet. “A lot of the very best drone tech is still in Ukraine,” says Aaron Pierce, CEO of Pierce Aerospace, which helped pioneer Remote ID for drones. “That technology, which is very much a dual-use opportunity, will eventually make its way to the market.”
There are also great opportunities for growth in the traditional aerospace and defense companies. “Look beyond the drone,” Pierce advises. “Companies like Honeywell and Motorola are investing in component and infrastructure plays that will last longer and be more durable than any individual drone make and model.”