Which Is the Better Artificial Intelligence ETF, Roundhill's CHAT or iShares' IYW?

Investors can choose between the broad, seasoned portfolio of the iShares U.S. Technology ETF (NYSEMKT:IYW) and the hyper-concentrated, high-growth focus on artificial intelligence offered by the Roundhill Generative AI & Technology ETF (NYSEMKT:CHAT).

The iShares fund tracks established giants across the U.S. technology sector, providing diversified exposure to hardware, software, and semiconductors. In contrast, the Roundhill fund is a thematic vehicle designed to capture the specific growth trajectory of generative artificial intelligence and related infrastructure companies.

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 Roundhill fund is more expensive, with a 0.75% expense ratio that roughly doubles the 0.38% cost of the iShares fund. However, CHAT provides a much larger payout for income-seeking investors through its 1.80% trailing dividend yield.

Performance & risk comparison

What's inside

The Roundhill Generative AI & Technology ETF concentrates on companies at the forefront of the AI shift, with its portfolio including technology (76%), communication services (18%), and industrials (4%). Its largest positions include Nvidia (NASDAQ:NVDA) at 7.29%, Alphabet (NASDAQ:GOOGL) at 5.66%, and Broadcom (NASDAQ:AVGO) at 4.71%. This fund holds 52 securities and was launched in 2023. The Roundhill Generative AI & Technology ETF has paid $1.68 per share over the trailing 12 months, which on its recent ~$90 share price works out to a 1.80% yield.

The iShares U.S. Technology ETF provides a broader look at the sector, though nearly 40% of the fund is focused on semiconductor-related stocks, a key driver of the AI boom. Its largest positions include Nvidia at 13.10%, Apple (NASDAQ:AAPL) at 12.94%, and Microsoft (NASDAQ:MSFT) at 8.75%. The fund manages 149 holdings and was launched in 2000. The iShares U.S. Technology ETF has paid $0.26 per share over the trailing 12 months, which on its recent ~$245 share price works out to a 0.10% yield.

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

What this means for investors

The 2023 launch of the Roundhill Generative AI & Technology ETF (CHAT) coincided with the rise of the artificial intelligence sector to capitalize on this emerging market. Even though the iShares U.S. Technology ETF (IYW) delivers a broader scope than just AI, many of its holdings are part of the AI industry, such as Nvidia and Microsoft. Which to choose to gain AI exposure depends on a few considerations.

CHAT is ideal for those who want a pure AI-only ETF, and are willing to take on greater risk and volatility as a tradeoff. Its impressive one-year and three-year returns combined with a far superior dividend yield are key reasons to invest in CHAT. Another benefit is that it is an actively-managed fund, which contributes to the higher expense ratio, but you get experts making the necessary fund adjustments to keep pace with the fast-moving AI industry.

IYW is for conservative investors who want AI exposure without the high beta and max drawdown seen with CHAT. This fund balances high-risk, high-reward AI stocks with broader technology holdings, such as Apple. As a result, it’s a more diversified ETF, which reduces the impact of downturns in the AI sector.

Robert Izquierdo has positions in Alphabet, Apple, Broadcom, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Broadcom, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.