CHAT vs. XLK: CHAT Outperforms XLK on Returns, But XLK Offers on Fees

Investors choosing between Roundhill Investments - Generative AI & Technology ETF (NYSEMKT:CHAT) and State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) must balance specialized generative AI exposure against a diversified, low-cost technology sector staple.

Both funds provide concentrated access to the technology sector but through different lenses. While XLK captures established giants within the S&P 500, CHAT actively targets companies specifically driving the generative artificial intelligence revolution. This comparison explores whether the specialized focus and active management of the Roundhill fund justify its higher costs relative to the State Street staple.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The cost difference is significant; the State Street Technology Select Sector SPDR ETF is far more affordable with an 0.08% expense ratio. However, the Roundhill Investments - Generative AI & Technology ETF currently provides a notably higher payout for income-seekers.

Performance & risk comparison

What's inside

State Street Technology Select Sector SPDR ETF provides exposure to technology hardware, software, and semiconductor industries with 73 holdings. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 14.92%, Apple Inc (NASDAQ:AAPL) at 12.19%, and Microsoft Corp (NASDAQ:MSFT) at 8.57%. Launched in 1998, the fund focuses entirely on the technology sector (100%) and has a trailing-12-month dividend of $0.76 per share.

Roundhill Investments - Generative AI & Technology ETF is an actively managed portfolio targeting companies in the generative artificial intelligence space. The fund holds 52 positions across technology (74%), communication services (18%), and consumer cyclicals (7%). Its largest positions include Nvidia Corp at 7.06%, Alphabet Inc (NASDAQ:GOOGL) at 6.56%, and Advanced Micro Devices Inc (NASDAQ:AMD) at 5.70%. Launched in 2023, the fund utilizes an ESG screen and paid $1.68 per share over the trailing 12 months.

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Which looks like the better buy

Roundhill Investments - Generative AI & Technology ETF (CHAT) and State Street Technology Select Sector SPDR ETF (XLK) are both tech sector exchange-traded funds (ETFs). Let’s explore their similarities and differences to determine what makes them appealing.

First, let’s begin with CHAT. This fund is relatively new, having been started in May 2023. Since inception, the fund has delivered a total return of 274%, equating to a compound annual growth rate (CAGR) of 54.7%. That’s an incredible return, and it has easily outpaced the S&P 500, which has generated a total return of 86% over the same period, with a CAGR of 22.8%.

CHAT holds major positions in stocks that form the backbone of the artificial intelligence (AI) ecosystem: Nvidia, AMD, Alphabet, and Micron, to name just a few. For income-focused investors, the fund does pay a decent dividend of 1.9%. CHAT’s greatest drawback is its fees. The fund has an expense ratio of 0.72%, which is on the higher side.

Then, there’s XLK. This fund has a much longer history, having been started in 1998. Over the last three years, XLK has generated a total return of 140%, with a CAGR of 33.6%. While this return isn’t as impressive as CHAT’s, it’s still significantly higher than the S&P 500’s. XLK holds many of the same stocks as CHAT, although it is not laser-focused on only the AI sector. Significant holdings include Broadcom, Cisco, and Qualcomm. XLK has a much lower expense ratio at only 0.08%. It also has a far more modest dividend yield of 0.4%.

In summary, CHAT and XLK are both tech sector ETFs, but they will appeal to very different types of investors. CHAT is AI-focused, with a shorter performance history, higher fees, and greater volatility. It will likely be the choice of more aggressive investors. XLK, on the other hand, has much lower fees, lower volatility, and a long performance history. It is the better choice for investors seeking broad exposure to the tech sector and those not willing to pay the higher fees charged by CHAT.

Jake Lerch has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Broadcom, Cisco Systems, Microsoft, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.