Why Drone Stocks Can Outlast Tech Swings

Technology stocks are key drivers of portfolio performance, but right now, AI stocks are king. Those hyperscalers, however, also loom as a key source of concentration risk for portfolios. What’s more, one would be hard pressed to avoid the headlines about potential AI bubble concerns. For investors looking for tech stocks that still offer growth without as much AI exposure, it may then be worth considering drone stocks.

Key Takeaways:

• Where AI hyperscalers and AI-specific tech offerings have big volatility ahead, for good and for ill, drone stocks can benefit from some steady upside.
• AI advances, as well as defensive asset demands, provide tailwinds for advances in drones and robotics.
• The ETF wrapper allows funds like DRNZ to explore that space and perform for portfolios.

Drone stocks benefit from advancements in tech including AI as well as the growing role they play in international defense. From Ukraine to the Strait of Hormuz, drones now play a key, leading role in conflict. 

For example, drones used outside of defense can use AI in search and rescue operations. AI can empower drones to process images more effectively. It can, of course, play a notable and important role in conflict, too, helping navigation and target acquisition. 

While AI advances tech, demand for defense assets and weaponry also offers a powerful tailwind. Nations around the world have watched modern conflict shift in Ukraine and the Middle East. Demand for drone tech in the U.S. and abroad is likely to grow.

A fund like the REX Drone ETF (DRNZ) provides a strong option to get exposure to those opportunities. The strategy charges a 65 basis point (bps) fee to track the VettaFi Drone Index. In doing so, the strategy invests in global drone firms with at least 50% of assets and revenues from drone manufacturing or enabling tech. It combines an 80% allocation to pureplay drone stocks and 20% to more diversified, but related, names. 

That has helped the drones stocks ETF return 24.7% YTD, according to ETF Database data. The fund has done well since its launch this past fall, with its price currently above its 50-day simple movingaverage (SMA). 

See more: How Active ETFs Can Outperform for Tech, AI IPOs

Together, it represents an intriguing tech offering that gets innovation without overreliance on AI, but by dipping into it. That can help it provide a diversifier away from concentration risk from that handful of AI hyperscalers while also delivering performance that appeals.

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VettaFi LLC (“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.