The Pentagon’s FY2027 budget request totals $1.5 trillion, with $54 billion earmarked for autonomous and remotely operated systems and another $39 billion routed through what the Department of War now calls “Drone Dominance.
That structural tailwind is the entire pitch behind Global X Defense Tech ETF (NYSEARCA:SHLD), a thematic vehicle that has gathered roughly $7.5 billion in assets at a 50 basis point expense ratio. SHLD is the largest pure-play vehicle for betting on drones, loitering munitions, and the systems built to hunt them.
What you are actually buying
The return engine is concentrated positions in global defense primes alongside a long tail of autonomous-systems names. Lockheed Martin (NYSE:LMT | LMT Price Prediction) sits at about 8.4% of the fund, RTX (NYSE:RTX) at 7.8%, and General Dynamics (NYSE:GD) at 7.7%.
The names retail investors actually associate with autonomous warfare carry smaller weights. Roughly half the book sits outside the United States, with sizeable positions in BAE Systems, SAAB, Hanwha Aerospace, Thales, Leonardo, and Elbit Systems.
Does the autonomous thesis show up in returns
Year-to-date through early June, SHLD is down about 1.6%. The iShares U.S. Aerospace & Defense ETF (NYSEARCA:ITA) is up 7%. The SPDR S&P Aerospace & Defense ETF (XAR) is up 13%. The S&P 500 is up 7%. Over the past year, SHLD returned about 13% while ITA returned 28.8% and XAR returned 39%. The fund organized around the most exciting story in defense has trailed every reasonable benchmark.
Mix explains the gap. The geographic dilution into European and Asia-Pacific contractors meant US-only ETFs captured more of the rotation into American primes. And the pure-play autonomous names dragged hard. KTOS is down 30% year-to-date, AVAV down 31%.
Kratos raised FY2026 revenue guidance to $1.70 billion to $1.76 billion and AVAV posted 143% year-over-year revenue growth last quarter. Kratos CEO Eric DeMarco called it a “generational recapitalization of the U.S. defense industrial base”. The market has yet to pay for that story. Meanwhile LHX (up 4% YTD) and BWXT (up 9%) did the quiet work, which is precisely what XAR and ITA are weighted to capture.
The tradeoffs you accept
- International dilution. Nearly half the fund sits outside the US, so you are partly betting on German rearmament and Korean shipbuilders alongside Pentagon checks. Good in NATO-led years. Bad in 2026.
- Long-tail valuation risk. KTOS trades at a forward P/E around 152 and AVAV around 50. Any procurement delay compresses the multiple fast, as AVAV’s $151 million BADGER SCAR goodwill writedown demonstrated.
- Top-heavy concentration. The top five holdings make up roughly 37% of the fund. Buying SHLD for drones still means most of your money sits in Lockheed, RTX, GD, Rheinmetall, and Palantir.
Who it fits
SHLD works as a 3% to 5% thematic sleeve for investors who specifically want global defense exposure with a tilt toward emerging autonomous platforms, and who accept that ITA (at a cheaper expense ratio) will likely keep up or beat it in any US-driven defense rally. Investors who want pure American defense exposure already have better tools in ITA and XAR.
Investors who want the autonomous-weapons trade specifically can own KTOS and AVAV directly and skip the dilution. SHLD expresses a credible long-term thesis about where defense spending is going. So far it has been a worse way to play that thesis than just buying the boring ETF next to it.
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