CHAT Delivers Bigger Gains, but With Higher Risk Than IYW: Which Tech ETF Is the Better Buy?

The iShares US Technology ETF (IYW 1.26%) and the Roundhill Investments - Generative AI & Technology ETF (CHAT 3.56%) both provide exposure to the tech sector, but through different lenses.

IYW tracks major U.S. technology companies and delivers broad exposure to the sector, while CHAT is an actively managed fund zeroing in on generative artificial intelligence (AI) and related innovations.

This comparison highlights the tradeoffs between a classic, diversified U.S. tech ETF and a more concentrated, high-octane play on AI trends.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

CHAT’s expense ratio is almost double that of IYW, making it less affordable. However, CHAT also offers a much higher yield, which may appeal to those seeking income alongside aggressive growth.

Performance & risk comparison

What’s inside

CHAT focuses on generative AI and technology, with about 72% of assets in the technology sector, 20% in communication services, and 7% in consumer cyclical. Its holdings are actively selected, led by companies like Alphabet, Nvidia, and Microsoft. The fund is relatively young, having launched just under three years ago.

In contrast, IYW covers a broader spectrum of U.S. technology, with 140 holdings spanning technology, industrials, and communication services. The portfolio is anchored by familiar giants such as Nvidia, Apple, and Microsoft, offering a more diversified approach to the sector.

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What this means for investors

CHAT and IYW both offer exposure to the tech sector, but IYW provides a more diversified approach.

IYW spans the broader tech sector, while CHAT primarily focuses on stocks advancing generative AI. These different approaches can be both an advantage and a drawback.

In general, greater diversification can help limit risk. If generative AI falls out of popularity in the future, CHAT would likely be hit much harder than IYW. That said, if AI continues to thrive as it has in recent years, CHAT could experience much greater earning potential.

While it’s a relatively young fund at just under three years old, CHAT has significantly outperformed IYW in both one- and two-year total returns. However, with a higher beta and deeper max drawdown, it’s also experienced more significant volatility in the past year.

Where you choose to buy will depend on what you’re looking to achieve with a tech ETF. Those seeking targeted exposure to generative AI may prefer CHAT’s narrower focus, while IYW may be a better fit for investors who prefer more diversification within the tech sector.