Defiance proposes an ETF with 80% exposure to private companies. Here’s how it works

Defiance ETFs, a leading ETF sponsor with $10.72 billion in assets under management and 82 listed ETFs, filed a supplement dated July 27, 2026, to expand the investment mandate of its Defiance Drone & Modern Warfare ETF (JEDI). The changes, effective August 6, 2026, introduce a secondary investment objective permitting exposure to privately issued securities within the drone and modern warfare sector, marking a significant structural shift in the fund's strategy while preserving its core public equity mandate.

The expanded mandate allows JEDI to allocate up to 15% of net assets to private company investments, with the adviser expecting aggregate private allocations to approximate 5% of net assets at the time of purchase. The 15% ceiling represents an outer limit rather than a target allocation, providing flexibility for opportunistic deployment. Private company holdings will be structured either as direct equity stakes or through interests in single-asset SPVs sponsored by unaffiliated third parties, with all such positions classified as illiquid investments under SEC Rule 22e-4. This structural approach offers the fund exposure to pre-public or non-listed companies that would qualify for inclusion in the BITA Drone & Modern Warfare Select Index if their securities were publicly traded.

The fund's primary investment objective—tracking the total return performance of the BITA Drone & Modern Warfare Select Index with at least 80% net asset allocation to public drone and modern warfare companies—remains unchanged. This preservation of the core mandate ensures existing shareholders' exposure to the public market index remains intact while adding optional private equity exposure at the adviser's discretion. The management fee structure also remains unaffected at 0.69%, with no anticipated increases despite the expanded operational complexity associated with private market holdings and SPV administration.

The first deployment of this expanded mandate included an investment in Shield AI, a private defense technology company specializing in autonomous systems. This initial private allocation demonstrates Defiance's operational readiness to execute the new strategy and signals active adviser engagement in sourcing private drone and modern warfare investments. The structure balances liquidity concerns inherent to illiquid private securities against investor demand for thematic exposure to high-growth private defense companies, creating a hybrid public-private ETF vehicle within the tactical defense technology space.