Beyond Single Rocket Plays: Why This Drone And Defense ETF Delivers Superior Diversification

When investors hunt for exposure to cutting-edge military technology and space innovation, rocket companies like Rocket Lab naturally come to mind. The stock has been a stellar performer—jumping 360% in 2024 and another 174% in 2025, turning a $10,000 investment from three years ago into $186,880 today. Yet as impressive as this rocket-focused play has been, there’s a more strategic approach: the Defiance Drone and Modern Warfare ETF (NYSEMKT: JEDI), which holds Rocket Lab as a top position while granting investors access to a much broader universe of defense and drone technology companies.

The Multi-Layered Defense Tech Opportunity

The JEDI ETF, launched by Defiance ETFs in September 2025, takes a thematic approach rather than tracking traditional market indexes. The fund invests exclusively in companies deriving at least 50% of revenue from military drones, AI-powered defense systems, space weaponry, military robotics, cybersecurity solutions, and satellite technology. With a portfolio cap limiting any single holding to 10% of the fund’s weight, the structure prevents overconcentration while maintaining meaningful exposure to industry leaders.

As of early 2026, the JEDI ETF holds 26 stocks, with the top 10 accounting for 64% of the fund’s total weight. This composition reveals a sector in explosive growth: the fund’s holdings have delivered extraordinary one-year returns, far exceeding what most investors might expect from a specialized thematic vehicle.

The Standout Performers: Rocket, Drone, And AI Defense Leaders

Rocket Lab ranks first in the JEDI portfolio with an 8.66% weighting, having posted a 180.8% one-year return. Yet it’s not the highest performer within the fund itself. That distinction belongs to Saab AB, a Swedish defense giant with a 6.45% position that surged 282% over the same period. The company manufactures fighter jets, drone systems, and military cybersecurity infrastructure—making it a pure-play on modern aerial warfare and drone innovation.

Kratos Defense & Security Solutions represents another standout, claiming the second-largest position (7.29%) with a 242.4% one-year gain. Kratos specializes in high-performance drone manufacturing and satellite communications for space-based military applications, directly capturing the explosion in drone-driven defense spending.

Other top holdings reflect the fund’s comprehensive approach: L3Harris Technologies (6.83%, +56.1%), RTX (6.73%, +57.1%), Thales SA (6.06%, +94.7%), and Palantir Technologies (5.79%, +126.3%). Palantir deserves special attention—its data analytics platforms and Artificial Intelligence Platform (AIP) process satellite imagery and intelligence data from hundreds of sources worldwide, enabling military and intelligence agencies to synthesize real-time battlefield insights.

How Rocket Lab Fits Within The Larger Military-Space Ecosystem

While Rocket Lab’s prominence in the JEDI portfolio is well-deserved, it represents just one piece of a much larger strategic picture. In 2025 alone, Rocket Lab executed 21 successful orbital launches for customers including the U.S. Space Force, Japan’s national space agency, and various commercial clients. The company plays a central role in NASA’s Escapade mission to Mars—it supplied spacecraft components transported by Blue Origin rockets to study solar wind interactions with Mars’ atmosphere.

More directly relevant to the fund’s military focus, Rocket Lab has secured substantial defense contracts: an $816 million award from the U.S. Space Development Agency to build missile-tracking satellites, and a $515 million contract to develop satellite communications networks for military data transmission. The company is also positioned to compete for the Department of Defense’s Golden Dome initiative, which envisions an integrated system of ground-based and space-based interceptor missiles.

Rocket Lab’s military revenue stream, while significant, represents one component of its overall business. In contrast, many other JEDI holdings—like Saab and Kratos—derive substantially more revenue from defense and drone applications, creating a more comprehensive exposure to military innovation than holding Rocket Lab alone.

The Policy Tailwind Powering The Sector

One critical factor fueling these exceptional returns is unprecedented government spending commitments. President Trump has proposed expanding the U.S. defense budget from $900 billion in 2026 to $1.5 trillion in 2027—a 67% increase that would redirect enormous capital toward drone technology, space-based weapons, satellite systems, and AI-driven defense platforms. This policy environment provides tailwind support for every company held within the JEDI portfolio.

Diversification Over Concentration

While Rocket Lab remains an excellent individual holding, the JEDI ETF approach offers meaningful advantages. Instead of betting on one company’s execution, investors gain exposure to 26 carefully curated businesses across different drone, defense, space, and military technology subsectors. Should one holding underperform, the diversified structure cushions the impact.

The fund’s 0.69% expense ratio ($69 per $10,000 invested annually) is reasonable considering the active thematic curation required and the specialized research necessary to identify qualifying companies. For investors seeking concentrated exposure to one rocket or drone manufacturer, the annual fee might seem high. For those wanting diversified access to the entire military-space-defense-technology boom, it represents a reasonable cost of entry.

The Verdict

Individual Rocket Lab shares have delivered extraordinary returns and will likely remain a cornerstone holding for space-focused portfolios. However, the Defiance Drone and Modern Warfare ETF offers a superior risk-adjusted approach for investors seeking exposure to the military technology revolution. By holding Rocket Lab alongside Kratos, Saab, Palantir, and other drone and defense leaders, the JEDI ETF provides the compound advantages of diversification, active thematic selection, and access to a sector poised for multi-year growth driven by rising defense budgets and global geopolitical tensions.