Why Drone and Rocket Technology ETFs Offer Better Returns Than Investing in Single Stocks

When investors look at the aerospace and defense sector, they often focus on standout names like Rocket Lab (NASDAQ: RKLB), which has delivered extraordinary gains over the past two years. However, a more strategic approach may be to gain diversified exposure to the entire ecosystem of rocket, drone, and defense technology companies through a specialized ETF designed for this emerging industry.

The Defiance Drone and Modern Warfare ETF (NYSEMKT: JEDI), which launched in September 2025, represents a compelling alternative for those seeking broader exposure to the rocket and drone revolution while managing concentration risk. Rather than betting heavily on a single company, this thematic fund provides investors access to the full spectrum of military aerospace, unmanned systems, and advanced defense technologies reshaping the global security landscape.

The Case for Rocket and Drone Industry Diversification

Rocket Lab’s performance alone demonstrates the opportunity within aerospace and defense. The company’s stock surged 360% in 2024 and another 174% in 2025, turning a $10,000 investment from three years prior into $186,880 today. These are exceptional returns that reflect both the company’s operational excellence and the broader tailwinds supporting the rocket and space launch industry.

Yet this concentration in a single company carries risks. While Rocket Lab has secured major contracts—including an $816 million agreement with the U.S. Space Development Agency for missile-tracking satellites and a $515 million contract for military satellite communications—the company remains subject to individual execution risks, customer concentration, and market sentiment volatility.

A diversified approach through the JEDI ETF mitigates these concerns while maintaining exposure to the same powerful industry trends.

Understanding the JEDI ETF’s Drone and Defense Strategy

The Defiance Drone and Modern Warfare ETF focuses exclusively on companies deriving at least 50% of revenue from military aerospace, drone technology, AI-driven warfare capabilities, defense software, and related security infrastructure. This tight screening ensures that every holding in the fund is genuinely committed to the defense and drone sectors, unlike broader aerospace ETFs.

As of early 2026, the JEDI ETF held 26 stocks with Rocket Lab as its largest position at 8.66% weighting. The fund’s top 10 holdings account for approximately 64% of total assets, with the remaining positions providing exposure to specialized defense companies.

The fund’s structure includes a critical safety feature: no single stock can exceed 10% of the portfolio. This cap prevents overconcentration and ensures that investors benefit from multiple growth stories rather than depending on any one company’s performance.

Leading Holdings Beyond Rocket Stocks

The JEDI ETF’s portfolio extends far beyond rocket manufacturers. Saab AB, the Swedish defense contractor, has been the top performer over the past 12 months with gains of 282%, significantly outpacing Rocket Lab’s 180.8%. Saab’s expertise in fighter jets, drone systems, and military cybersecurity positions it well for the anticipated expansion in global defense spending.

Kratos Defense & Security Solutions (242.4% return) has similarly outshined Rocket Lab by focusing on high-performance drone systems and satellite communications specifically designed for space-based military applications. This specialized focus on unmanned systems and drone technology addresses one of the fastest-growing segments of modern warfare.

Other significant holdings reflect the diversity of the defense drone ecosystem:

• Palantir Technologies (5.79% weighting, 126.3% return): Specializes in data analytics and AI platforms that process satellite imagery and real-time intelligence for military operations
• L3Harris Technologies (6.83% weighting, 56.1% return): Major defense contractor with diverse revenue streams including communications and reconnaissance systems
• RTX (6.73% weighting, 57.1% return): Diversified aerospace and defense conglomerate with significant space and rocket-related operations
• Elbit Systems (5.78% weighting, 131.8% return): Israeli defense electronics and unmanned systems manufacturer
• Thales SA (6.06% weighting, 94.7% return): European defense and aerospace specialist

How Rocket Lab Fits Into the Broader Drone and Defense Narrative

Rocket Lab’s inclusion as the JEDI ETF’s top holding reflects its importance to the modern defense infrastructure, though the company’s military exposure may be less obvious than dedicated drone manufacturers. In 2025, Rocket Lab executed 21 successful launches, serving customers including the U.S. Space Force, Japan’s space agency, and classified government programs.

The company’s role in NASA’s Escapade mission to Mars, where it supplied spacecraft for solar wind research, showcases its capabilities in advanced space systems. More directly relevant to the defense mandate, Rocket Lab’s contracts include the aforementioned $816 million satellite project and the $515 million military communications network, both critical to U.S. space warfare capabilities.

Additionally, Rocket Lab is expected to pursue contracts related to the Department of Defense’s Golden Dome project, which would deploy integrated ground and space-based missile interception systems. This growing portfolio of defense work, combined with the anticipated surge in U.S. defense spending, positions Rocket Lab as a crucial component of the broader drone and defense ecosystem.

The Investment Logic: ETF Diversification Over Single-Stock Exposure

President Trump’s stated objective to increase U.S. defense spending from $900 billion in 2026 to $1.5 trillion in 2027 creates a powerful tailwind for the entire defense and drone sector. This isn’t a temporary trend but rather a structural shift toward higher defense budgeting.

While Rocket Lab offers compelling exposure to this opportunity, the JEDI ETF provides several advantages:

1. Reduced Single-Company Risk: By holding Rocket Lab alongside 25 other defense and drone specialists, investors reduce dependence on any one company’s execution
2. Exposure to Drone Innovation: Companies like Kratos Defense, AeroVironment, and Saab AB provide specialized drone and unmanned systems exposure that pure rocket plays cannot match
3. Balanced Sector Participation: The portfolio spans launch services, combat drones, AI-powered defense software, military cybersecurity, and advanced electronics—a true representation of modern defense technology
4. Professional Screening: The fund applies consistent revenue criteria, ensuring all holdings have genuine defense commitments

The JEDI ETF’s expense ratio of 0.69% annually ($69 per $10,000 invested) is somewhat elevated compared to broad-market index funds, but it remains competitive for a specialized thematic fund with active stock selection and regular reconstitution to maintain sector focus.

Strategic Takeaway: Rocket and Drone Exposure Through Diversified Funds

For investors convinced about the long-term opportunity in rocket technology, defense drones, and modern warfare systems, the case for JEDI ETF over a concentrated Rocket Lab position is compelling. The fund delivers the desired exposure to aerospace innovation and defense modernization while spreading risk across multiple leaders in the drone and defense sectors.

Rather than selecting a single rocket or drone company and hoping it outperforms, JEDI offers a professionally curated portfolio of businesses that are shaping the future of military technology and space operations. In an industry where government contracts, technological breakthroughs, and geopolitical factors create both opportunities and uncertainties, diversification through this ETF makes strategic sense for most investors seeking meaningful exposure to the drone and rocket revolution.