REX Drone ETF (DRNZ) July 2026 Commentary
July Recap: Defense Strength, Pure-Play Pressure
Fund Snapshot
- July Performance (NAV): DRNZ -8.66% | S&P 500 Index -0.06%
- YTD Performance (NAV): DRNZ -6.07% | S&P 500 Index +10.14%
- Gross Expense Ratio: 0.65%
As of July 31, 2026. For current standardized performance, click here.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling 1-844-802-4004. Short term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns.
Commentary
- Concentration, not a broad rotation away from the sector, was the dominant driver of July’s decline. Rather than repeating June’s across-the-board rotation out of defense and high-beta technology names, July produced a pronounced divergence between established aerospace and defense companies, which generally performed well, and several of the fund’s higher-beta drone pure plays, which remained under significant pressure. The five largest detractors alone subtracted approximately 681 basis points, overwhelming roughly 203 basis points of gains from positive contributors and leaving portfolio concentration as an important driver of monthly performance.
- AeroVironment’s weakness looks like a valuation and execution debate rather than a demand problem. The stock fell -13.38% and subtracted approximately 194 basis points as investors questioned how much acceleration is required to reach management’s fiscal 2030 objectives of $3.5-$4.0 billion of revenue, 15%-20% organic growth and 18%-20% adjusted EBITDA margins, and how much incremental investment will be necessary along the way; the underlying demand environment remained healthy, including a $117.3 million U.S. Army P550 production contract during the month, so the weakness appears less about deterioration in the defense opportunity than about how much future growth is already embedded in the stock.
- DroneShield’s decline shows the market’s bar for smaller pure plays has risen. Shares fell -29.08%, subtracting approximately 151 basis points, despite reporting first-half revenue growth of 74%, committed 2026 revenue of A$206 million and another A$23.2 million European military contract. Investors instead focused on gross-margin compression to roughly 60% from 65% and the still-unresolved governance overhang; after the stock’s prior rerating, strong revenue growth alone is no longer sufficient, and the market increasingly wants evidence that demand translates into sustainable margins, cash generation and institutional-quality governance.
- Red Cat Holdings and EHang illustrate how supply and demand concerns can outweigh operational progress. Red Cat fell -28.63%, costing approximately 145 basis points, even as the company advanced to Gauntlet II of the Pentagon’s Drone Dominance Program and received a $2.49 million U.S. Air Force Black Widow order; a CEO share-sale filing and subsequent executive dispute reinforced concerns around dilution, insider supply and execution following the company’s earlier capital raise. EHang declined another -23.66%, subtracting approximately 87 basis points, as analysts pushed out expectations for commercial eVTOL adoption in China and sharply reduced revenue forecasts.
- Ondas’ comparative resilience reflects a market looking past headline growth toward integration risk. Shares declined only -5.43%, subtracting approximately 63 basis points, despite an extraordinary amount of corporate activity: the company completed its $875.8 million acquisition of DZYNE Technologies, raised 2026 revenue guidance to at least $525 million and announced substantial new orders across its autonomous-defense portfolio. The relatively muted equity response suggests investors are now focused on the consequences of Ondas’ rapid expansion, including the approximately 85 million shares issued to DZYNE holders, integration risk, operating leverage and the capital requirements of a much larger defense platform.
- Positive contributors reinforced how selective July’s weakness was. Majestic Dragon AeroTech (918 HK) rose +110.66% and contributed approximately 61 basis points, while Terra Drone (278A JP) gained +34.96% and added roughly 57 basis points as its defense strategy gained greater investor recognition; Terra Drone’s progress is particularly notable because it represents a potential transition from a commercial drone-services company toward a more strategically valuable defense supplier. Established defense companies also performed well, with RTX (+12.22%), Lockheed Martin (+11.67%), Saab (+15.09%) and Leonardo (+13.04%) all advancing during the month, suggesting investor enthusiasm for defense broadly has not disappeared even as the market differentiates sharply between companies with established earnings and procurement franchises and smaller drone companies carrying financing, governance and execution risk.
- Looking ahead, the key question for DRNZ is whether the strong demand environment for drones and autonomous systems can begin translating into better financial performance across the portfolio. Government procurement activity, defense budgets and broader adoption trends continue to support the long-term opportunity, but investors are increasingly focused on execution rather than announcements alone; the next phase for the sector will depend on whether emerging drone companies can convert growing order books into higher production volumes, improving margins, lower cash burn and ultimately sustainable profitability, which could help narrow the valuation and performance gap that opened in July between higher-beta drone pure plays and more established aerospace and defense companies.
Beta is a measure of a security’s volatility relative to the overall market.
Top 10 Holdings
As of 7/31/2026
| Symbol | Name | Weighting |
|---|---|---|
| AVAV | AeroVironment | 13.87% |
| NXSN IT | Next Vision Stabilized Systems | 12.42% |
| ONDS | Ondas | 12.16% |
| UMAC | Unusual Machines | 4.52% |
| DRO AU | DroneShield | 4.13% |
| RCAT | Red Cat Holdings | 3.99% |
| ELS AU | Elsight | 3.61% |
| AVEX | Aevex | 3.34% |
| EH | EHang | 3.08% |
| GE | GE Aerospace | 2.83% |
*As of 7/31/26. Holdings are subject to change. For a complete list of fund holdings, click here.
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The Fund’s investment exposure is concentrated in the same industries as that assigned to the underlying securities. Some or all of these risks may adversely affect the Fund’s net asset value (“NAV”) per share, trading price, yield, total return, and/or ability to meet its investment objective. The value of the Fund, which focuses on underlying securities in the industrials sector, may be more volatile than a more diversified pooled investment or the market as a whole and may perform differently from the value of a more diversified pooled investment or the market as a whole.
Drone and UAV Companies Risk. Drone and UAV companies are closely tied to the economic fortunes of such companies’ research, design, manufacture, operation, or enabling technologies of drones and other unmanned aerial systems. The market for drone and UAV-related products and services is nascent, highly competitive, and characterized by rapid technological change, evolving regulatory frameworks, and heightened geopolitical sensitivities. Many drone and UAV companies are smaller, less seasoned issuers that may be more vulnerable than larger, diversified companies to fluctuations in demand, supply-chain disruptions, product obsolescence, patent or trade-secret litigation, and may have limited access to capital.
Emerging Markets Risk. Investments in securities issued by governments and companies operating in emerging market countries involve additional risks relating to political, economic, or regulatory conditions not associated with investments in securities and instruments issued by U.S. companies or by companies operating in other developed market countries.
Equity Securities Risk. Equity securities are subject to changes in value, and their values may be more volatile than those of other asset classes.
High Portfolio Turnover Risk. The Fund may actively and frequently trade all or a significant portion of the Fund’s holdings. A high portfolio turnover rate increases transaction costs, which may increase the Fund’s expenses.
Concentration Risk. The Fund will be concentrated in an industry or a group of industries to the extent that the Index is so concentrated. To the extent the Fund has significant exposure in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the Fund’s investments.
Liquidity Risk. The Fund may hold certain investments that may be subject to restrictions on resale, trade over-the-counter or in limited volume, or lack an active trading market.
Funds distributed by: Foreside Fund Services, LLC, member FINRA, not affiliated with Rex Shares, LLC, or its affiliates.
