Bill Birmingham, REX Shares

Be talking drones today, what do you like to do for fun when you're not working?

Well, I am recently an empty nester. My last child went off to college this fall. And so I'm kind of rediscovering how to spend time for myself, which has been sorely lacking over the last, say, decade or so. I'm a lifelong ice hockey player. I grew up playing in the Midwest. And so I've been, playing in men's leagues here in Connecticut, probably my entire adult life. So when I can get away, and it kind of dovetails well, because, most ice time for adults is like 11 o'clock at night. So, I'm that guy who's, out, pounding the boards at one in the morning, and then, coming home half hyped up, can't get

And I played maybe men's league for a year. And I'm like, I just, I enjoy my MCLs and my ACLs too much. And so you're a brave man for staying on the ice.

Yeah, it's rough on the system. I've had a few, I've had a few unfortunate injuries, but I refuse to give it up despite my wife pleading with me to move on.

Well, it's funny. You're empty nesting. And, I just signed my four-year-old, soon-to-be five-year-old up for hockey. So we are, I'm just getting restarted. So I'm sure I'll be back on the ice here pretty shortly, coaching with a whistle.

You're on the front end of the curve. I'm jealous. That's awesome. Good for you.

So Rex started with, the T-Rex leverage products and micro sectors. Now you've got, Spot Solana, you've got XRP, TFs with staking, you've got, income options, you've got Bitcoin convertible bonds. What is the unifying philosophy over at Rex? There has to be some through line, or are you just trying to, as you kind of said, see where the future is going and try to create products for that?

Yeah. I think that's a good starting point. we're just trying to give traders and investors what they want. And so we listen to the market, we're very in tune with kind of what the retail flow is looking for, where they like to, find edge. Leverage is obviously, as you say, a big component of that. We're always trying to add leverage to the system to, again, give traders of conviction, the ability to express that conviction, at a higher level. And then some of this stuff that we've been doing is also has tried to kind of round out the portfolio for individual investors. We have some growth and income products, the recovery call suite, we have an auto callable note fund that we've just

How the reception has gotten. Yeah, I want to talk about drones here in a second. I wanted to ask, though, it's interesting, you guys launched spot Solana and XRP ETFs with staking before most issuers like even had their filings in, how do you get how are you getting these things? Or how are you viewing kind of the regulatory process over there of kind of, I guess, taking swings and seeing if I don't want to say allowed to get a product to market. But these are these are new pioneering products. And so it has to be a little bit more difficult than most products to

Actually get out there. Indeed. I think our underlying philosophy is is to, push the limits of where we think that, the market wants to go and try to give investors what they want. And if that requires, if that requires us going to the SEC, which it did in the case of Solana and our ESK staking product, like you say, it's the first in the market to offer staking, we just think that's an, that was an important piece of the crypto ecosystem, a lot of 33X funds, we're not allowed to do that. And, if you're interested in crypto, that, for these proof of stake protocols, staking, generates yield that offsets the dilution of some of the issuance in these in these particular protocols. So,

So let's get into drones. Ticker is DRNZ. You guys launched it in late, I guess, 2025. It's the Rex drone ETF. It is the only pure play drone and UAV fund kind of on the market. What made you look at the space and say, this particular sector needs its own product?

So when you look at kind of the drones exposure in the market, the only real way that people were getting it was through military specific ETFs. And just looking at the construction of those ETFs, there's nothing wrong with them. Just the simple fact was that we thought that drones had more interesting use cases that were not being exposed in those particular funds. And so you were buying a lot of legacy defense systems and just pure aerospace in order to get the fastest growing piece of it, which wasn't just really showing up in the performance. And so we thought, it would be much better to construct a fund that really captured the kind of additional and emerging use cases of drones, as well as the just the pure play nature of it in defense. I mean,

So the investable universe for drones is a little bit tricky. So your screen requires companies to derive at least 50% of their revenue from drones or UAV enabling tech. So how hard is it to actually run that filter? And are you finding enough names in the universe that, it's the universe is pretty thin. it is newer. So.

Yeah. And we have a market cap. We have a market cap cut off of $100 million, as well as some other, additional liquidity screens that go into it. Thankfully, we have a very strong partner with Vetify. They are our index calc agent and, index construction partner. They do an amazing job of kind of scouring the universe to make sure that, any and all constituents that meet these requirements are being, captured. It's a global fund. And so I think if you look at kind of the breakdown of the constituents right now, it's probably about, I don't know, 50-ish percent North American, maybe a little bit higher than that. We have some Chinese ADR exposure. We have European exposure. There's a big Australian piece given the kind of nascent counter drone technology sector

So let's talk about, let's stay on the index construction because you've got about 43 holdings the last time I've looked. they're diversified buckets with weight caps. So pure plays, if I understand it, can go up to 15%. Diversified, if you could define that for me, maxes out at five. So can you talk me through, the index and, why are you, maybe why is it working this way rather than just equal weight or, I guess trying to do some sort of active approach to picking the best names, right? So walk me through the index construction just a little deeper if you could.

Yeah, absolutely. So just to, just to go off your point about what diversified is, does essentially, um, if it's not a pure play, again, like to use the defense example, if it has about 20% of its revenue from drones, UAV, enabling tech manufacturing or R&D, then it's considered to be, part of the diversified bucket, um, and then can meet that specific criteria. And again, the goal was not to exclude defense. It was to try to capture the defense companies that had the most drone exposure kind of in their portfolio. Uh, and then, to kind of broaden out why, why the modified market cap. Um, I think if you look at this space over time, um, we would argue that it's still in that, that ultra competitive, highly Darwinian,

So you, you actually walked me directly into my next question. the, the news cycle, if you're paying attention to drones, it is a, it is a wild news cycle, right? Like you had a company like Swarmer who IPOs at five hits $55 in like 48 hours. Um, you've got, there's so many stories like out like that out there. So how do you keep up with this velocity? And like, how does it change how you think about rebalancing this fund? Because it literally changes

Day by day, week by week sometimes. Yeah. to your point, that is the, the beauty of the indexing methodology is that, we, you may not capture the, the first hundred million of the market cap move in that particular, scenario where it goes from five to 50, but you will get, a piece of that action, um, as it moves up into, um, into the table and, the fund rebalance is, um, uh, periodic enough that I think you do, manage to capture a lot of that news flow that, that you mentioned. Um, other piece of this puzzle is that we want to make sure that, um, it's not just defense

Growth trajectory. Yeah. I want to, I want, I want to get into some of the other use cases other than defense, but before we do the a, like the asymmetry story in defense alone is fascinating, right? Iran is, is sending $50,000 drones and it costs us millions per interceptor, right? Is that a structural tailwind you lead with when you're talking to allocators about the space? Like you, a, a very cheap drone could do something very effective and it could be very expensive to

Defend against it. So, um, can you talk a little bit about that? Yeah, uh, it is, it is truly, revolutionizing warfare in the same way that the tank revolutionized warfare, in the mid 20th century. And to your point, Ukraine was really the, and still is unfortunately the, um, the laboratory for this particular technology. if you take even a step back even further, what's really interesting about it is that, drones are not that new and they've been around actually since, since kind of early warfare, the British invented it. And they were using radio controlled drones as like training exercise, uh, vehicles to shoot down, um, and test their, their anti-aircraft systems.

So let's, uh, I wanted to pivot, but you bring up an interesting point with counter drones. One thing people don't really realize, let's take, um, the world cup is coming here to the United States. Right. And if for whatever reason, a drone was, was heading into a populated area, you can't just shoot them down at, in an, and or around the stadium. So you have to be able to, um, get these things just, disabled and being able to like hit the ground without hurting people. And so can you talk about some of the interesting things that are maybe going on in the counter drone space that is keeping, our cities, our stadiums, and, overall our people safe, um, to make sure that, a $400 drone flown by a bad

Actor can be intercepted and, and safely. Yeah. it's a scary scenario. Um, to your point, whether it's going to be a sporting event, um, I just recently, you saw in the Baltic States, Russia fly a very small drone into, I think it was an Estonian power plant, um, which then set off alarm bells across NATO countries that aren't even militarized right now, all of a sudden they're saying to themselves, okay, I need to start allocating defense budget to, soft targets like infrastructure and, and you name it. So, um, and we had another encourage in the United States, there was someone we still don't know who flew drones into our, um, our air base, uh, I believe it was in Louisiana where we have, where we house, long range

Wonderful. Let's talk about some, uh, let's get off of defense. Um, we talked about it enough. I know that there's a lot going on there, but there's a lot of other cool stuff that is in the portfolio that isn't defense. So there's things like logistics, agriculture, infrastructure, inspection, AI, industrial automation. So what are you actually seeing real commercial revenue traction from right now? And some of these other non-defense companies.

Yeah, absolutely. I think a good place to start with that is kind of the, at the industrial side, um, where we're seeing current revenue and real, use cases, uh, in the agriculture sector. there's probably about $3 billion worth of, uh, recurring revenue in ag using drones for, let's just say crop application, um, inspection, um, various, types of ag uses, uh, drones are now powerful enough that they can carry payload, pretty heavy fertilizer payload that can be then applied over large areas. Um, so that's exciting. when you think about it, I think the average age of the U S farmers, North of 40 something, getting older. Um, and that's true across a lot of industrial sectors in North America,

So I was, it was, you took the next question, uh, right from me, which was, the BVLOS rules are just coming out. As you just said, we've got 26 state flying taxi testing. How quickly does regulatory progress like that can, can it, how quickly can it change the composition of the fund or the size of the investable universe?

That's yeah. That's going to be an interesting, process to watch because at the moment, if you look at our top 10 holdings, in the fund, they still are heavily, geared towards defense spent. Uh, there's no doubt about it. Um, with the exception of say Ehang, which is a Chinese, uh, um, company that's, that's going into the Evital space. We can talk about Evital in a minute, but last mile, um, last mile delivery, um, that has come a lot faster than I expected in this space. Um, Amazon's, uh, obsession with density and trying to cut costs. And, and that has clearly been, the biggest, um, cost factor is just high cost, low density, last mile delivery. And the ability to do with a drone is,

I was joking with my wife. There was, you could buy one of your own personal quads. Um, and like, wouldn't this be great to just like take back and forth to the, I think we're going to see too, like if this actually happens, cause it feels a little Jetson-y to me. Um, there's all this infrastructure that just doesn't exist. It's going to have to be built. You're going to have to have, as you said, let's just take, we'll take a city hub, like, I don't know, uh, New York, for example, right now, if you wanted to get into the, the city very quickly, you get off, you get off the airplane and maybe you take a blade helicopter over and it, it lands over there on the, on the, uh,

Uh, the, um, the point to point use cases from, uh, from, uh, um, from a, like, as I say, like a Waymo perspective, when it's interesting, I haven't heard them necessarily discuss this yet. Um, so I'm a little bit surprised by that, but when you, when you layer autonomous technology into this, um, and then you start to kind of map what you can do, with it. And then like you, like you mentioned, cities like New York, anywhere you have a, 50 minute ride from the airport to, uh, to, to the center of the city, is up for, is up for grabs. Um, and so I would absolutely think that there are going to be companies that specialize in building

Better. So as if anybody hasn't picked up on it by now, the drone space is moving really, really fast. And I noticed you guys are publishing a weekly drone kind of market research report on the website. Is that kind of content marketing part of the distribution strategy, or is it more about like really, I don't want to say establishing credibility. You guys have credibility in the space, but it moves so fast. It's almost necessary to educate people as everything changes so quickly.

That's exactly the point. I think that we really felt like, um, if we kept this to a monthly or quarterly cadence, people would feel very hard, far behind on what was happening in the space. And so we try to get, um, judiciously information out there, even on a daily basis that we might see in the market, through X. Um, we certainly are trying to make that newsletter a must read piece of the, of the, of the sector flow. Um, we found that not a lot of people are really publishing in the space or really, talking too much or aggregating information, um, across these different verticals. And so we're trying to just create a central repository of information where people who, may be interested in, in, in the sector,

Flow. So last thing would be, you've got, you got leverage, you've got crypto, you've got income, you've got thematic, um, is the idea to go deeper there or are you still looking at, other gaps in the market and we could see, additional things, uh, that don't maybe fit

Those four couple criteria. I think for the moment, um, I think it's, it's, it's taking those categories and going deeper. Um, I'll never say never that, we might do something completely adjacent, um, when it comes, but again, like it's about keeping our finger on the pulse of the market, seeing where demand is going, what people want. Um, for now, this is what we think people want. And, and we're going to try to then kind of go deeper into those individual verticals, um, and build out some new exciting things that I know in particular, the thematic space, is still very nascent for us. And so we have some ideas kicking around that we think are gonna be exciting. hopefully as exciting as this Drown's product,

Well, again, Bill, thank you for spending some time with me today. Before I let you go, where can people learn more about Rex and get all the information they need on DRNZ?

Absolutely. So if you, uh, go to our website, uh, Rexfin, you can, you can sign up for this newsletter, stay on top of the drone space. Um, certainly follow us on Twitter. We can, get all of our various addresses there. Uh, I myself am on Twitter, uh, Bill Birmingham. Um, I will talk about crypto. I'll talk about drones, any other stuff in the market that is going on that I think is interesting. And there's certainly a lot these days. So, um, no, I really appreciate this opportunity to, to talk about our funds and talk about this one in particular, as you can see, I'm pretty excited about it. Uh, I liked the drone space quite a bit. I just think it's, I think it's just a really, kind of interesting and, um, you know,

Yeah, I hope so. I want my own flying taxi and I agree the drone sector is you and I kind of, uh, when we first met here a couple of weeks ago, we were talking about drones and a big part of my portfolio has been in drones. And so I agree with you. I think the space is super exciting,

But again, Bill, thanks for being here with me today. Thanks again. Take care. Bye.