Defiance Drone and Modern Warfare ETFJEDI

The JEDI ETF (JEDI), marketed as a ‘Defiance Drone and Modern Warfare ETF,’ has rallied 4.2% year-to-date, relative strength its ‘Modern Warfare’ theme by roughly 4.2 percentage points. The fund, which holds $128M in assets, tracks the ‘Nasdaq-100 Ex-Software’ index-a basket that excludes tech giants but includes stalwarts like a cruise operator and a tobacco company. Defiance ETFs, the issuer, charges a 0.65% expense ratio, which it justifies with the tagline ‘ETFs built for the next generation’ (source: Defiance ETFs official fund centre, https://www.defianceetfs.com/).

Despite its futuristic branding, JEDI’s top holdings include a 12.3% position in a semiconductor firm whose R&D budget is rumoured to be allocated entirely to Y2K compliance. The fund’s second-largest holding is a defense contractor that recently lost a bid to supply the Pentagon with USB drives. Liquidity remains a concern: average daily trading volume is 150,000 shares, though 70% of that comes from a single institutional investor who may or may not be a bot. (source: JEDI ETF listing and market activity, https://www.nasdaq.com/market-activity/etf/jedi)

The fund’s prospectus discloses that it may use derivatives to ‘enhance returns,’ though given its passive tracking mandate, this feels like bringing a drone to a knife fight and then asking for a time-out. Regulatory filings show no material changes to holdings in Q2, though the issuer did update its website with a new image of a drone flying over a cityscape-stock photo license purchased for $49.99. (source: Prospectuses, https://www.defianceetfs.com/prospectuses/)

JEDI’s tracking error relative to its benchmark index hit 0.89% in June, which Defiance attributes to ‘market volatility’ but is more likely due to the fund’s 5% stake in a company that reorganised its debt using a Ouija board. The FINRA Fund Analyzer notes that 82% of JEDI’s holdings have lag the S&P 500 year-to-date, a statistic the issuer has not included in its ‘In the News’ section. (source: FINRA Fund Analyzer, https://tools.finra.org/fund_analyzer/)