Is Roundhill Generative AI ETF or iShares U.S. Tech ETF Better In a Volatile Market?

The Roundhill Investments Generative AI & Technology ETF (NYSEMKT:CHAT) offers concentrated, active exposure to generative artificial intelligence, while the iShares U.S. Technology ETF (NYSEMKT:IYW) provides a broader, lower-cost index-based approach to the established domestic technology sector.

Both funds provide a gateway to high-growth tech, but their underlying strategies and cost structures differ significantly. While IYW tracks a diversified index of established domestic tech giants, CHAT is an actively managed fund specifically targeting the emerging theme of generative AI. This comparison helps investors decide between broad-market index stability and specialized thematic growth.

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 as of the closing prices of June 18.

The iShares fund is the more affordable choice, with an expense ratio of 0.38% compared to the Roundhill fund’s 0.75%. Additionally, the Roundhill fund offers a significantly higher dividend payout for investors seeking income alongside tech growth.

Performance & risk comparison

What's inside

The Roundhill Investments Generative AI & Technology ETF manages 42 holdings across sectors, including Technology at 76.9%, Communication Services at 16.7%, and Consumer Cyclical at 5.9%. Its largest positions include SK Hynix Inc at 6.2%, Micron Technology (NASDAQ:MU) at 6.1%, and Nvidia Corp (NASDAQ:NVDA) at 5.8%. This actively managed fund, launched in 2023, paid $1.68 per share over the trailing 12 months, reflecting a strategy focused on identifying global productivity drivers.

iShares U.S. Technology ETF offers a broader reach with 139 holdings and tracks the Russell 1000 Technology Index. Its largest positions include Nvidia at 14.81%, Apple (NASDAQ:AAPL) at 13.52%, and Alphabet (NASDAQ:GOOGL) at 12.06% across both share classes of the company. Launched in 2000, this fund has a trailing-12-month dividend of $0.26 per share. The fund is about 84% in technology stocks, 16% in communications services, and a smidgen in industrials.

Which fund is the better buy?

As Tuesday’s action in tech stocks shows, AI and tech stocks can be volatile. CHAT’s larger historical drawdown of more than 31% shows that the same volatility that sent the fund to its heights can also clip investment gains quickly.

The Roundhill AI fund has posted excellent growth year-to-date of 77%, as well as over the 3-year time frame at nearly 54%. Still, the fund has existed only during the general bull market for tech stocks and AI stocks in particular, so it’s difficult to gauge how the fund may perform in a sideways or bear market.

The iShares fund IYW has been through a few bear markets and has weathered the long-term market well. The fund did have significant drawdowns with the dotcom bust, the financial crisis of 2008, and in 2022, plus a milder drawdown during the pandemic. Yet over the 10-year time frame, IYW has returned nearly 26% and 8% (both annualized) since its inception.

A more diverse fund, like IYW, with its 139 holdings, longer track record, and much lighter expense ratio, makes the iShares U.S. Technology ETF the recommendation for long-term investors. CHAT has soared with the race into AI stocks, but it’s possible the AI-specific gains may be mostly in its rearview mirror.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.