AI-Focused CHAT ETF Beats VGT on Recent Returns, Yet Carries Higher Costs and Volatility

The debate over how best to capture growth in artificial intelligence continues to intensify, and two exchange-traded funds sit at the center of that discussion. The Roundhill Investments — Generative AI & Technology ETF (NYSEMKT: CHAT) and the Vanguard Information Technology ETF (NYSEMKT: VGT) both give investors exposure to industry leaders such as NVIDIA and Microsoft, but they pursue markedly different strategies, charge dissimilar fees, and display contrasting risk profiles. A close examination of the two vehicles highlights the trade-offs now facing investors who must weigh cost efficiency and broad diversification against thematic concentration and the potential for outsized gains.

CHAT, launched just over two years ago, is actively managed and purpose-built to invest in companies advancing generative artificial intelligence. The fund holds 52 stocks spread primarily across the technology sector, with smaller allocations to communication services and consumer cyclicals. Alphabet, NVIDIA, and Microsoft occupy the three largest positions, aligning the portfolio with key players behind large-language models, graphics processing units, and cloud infrastructure. An environmental, social, and governance (ESG) screen eliminates certain businesses from consideration, reinforcing the fund’s thematic focus while marginally narrowing its investable universe.

VGT approaches the space from a broader angle. Now holding roughly 310 stocks, the passively managed ETF tracks the MSCI US Investable Market Information Technology 25/50 Index, offering a sweeping view of the domestic technology landscape. Its top holdings are NVIDIA, Apple, and Microsoft, and the portfolio is 98 percent weighted to the technology sector. Rather than concentrating on one subsegment such as generative AI, the fund captures semiconductors, software, hardware, and digital services in proportions that mirror its benchmark. With more than $130 billion in assets under management, VGT ranks among the largest sector ETFs available.

Performance data during the past year underscores how a specialized mandate can amplify both upside potential and portfolio swings. For the 12-month period ended 23 January 2026, CHAT produced a total return of 39.4 percent, far surpassing VGT’s 16.8 percent. The income component tells a similar story: CHAT distributed a 2.7 percent yield, while VGT generated 0.4 percent. However, those gains came with more pronounced volatility. CHAT’s five-year weekly beta of 1.68 indicates that its price movements have been roughly 68 percent more volatile than the S&P 500, whereas VGT’s 1.29 beta points to a milder risk profile. Over the past two years, CHAT also recorded a deeper maximum drawdown, falling 31.35 percent from peak to trough, compared with VGT’s 27.23 percent decline.

The expense structure further distinguishes the funds. VGT carries a 0.09 percent annual expense ratio, a hallmark of Vanguard’s low-cost approach and a benefit to long-term holders. CHAT’s 0.75 percent fee, while within the typical range for active thematic ETFs, is more than eight times higher and could erode returns when performance gaps narrow. The larger asset base enjoyed by VGT supports its ability to keep costs minimal, while CHAT’s smaller scale — about $1 billion in assets — requires higher fees to cover management and operational expenses.

Diversification is another point of departure. VGT’s 310-stock roster reduces company-specific risk and cushions the impact of sudden price moves in any single name. In contrast, CHAT’s 52 holdings result in a higher concentration in its top positions, magnifying the influence individual companies exert on overall performance. Investors assessing position sizing, sector exposure, and liquidity may therefore arrive at different conclusions depending on their tolerance for concentration risk. According to research compiled by Morningstar, wider diversification has historically helped lower tracking error in passively managed funds, though it can also dilute thematic purity.

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The two ETFs also diverge in management style. CHAT’s portfolio managers actively adjust weightings and can introduce or remove holdings in response to evolving developments in generative AI. This flexibility allows the fund to tilt swiftly toward emerging leaders but also introduces manager-specific risk and the possibility of timing errors. VGT, by design, follows its underlying index and refrains from discretionary shifts, offering predictability and transparency but potentially lagging rapid innovations if index reconstitutions are slow to capture them.

Liquidity considerations favor the larger vehicle as well. VGT’s deep asset base translates into tighter bid-ask spreads and higher average daily trading volume, advantages that can lower transaction costs for institutional and retail investors alike. CHAT’s slimmer trading activity may widen spreads during periods of market stress, though its current volume remains sufficient for most individual investment sizes.

In the final analysis of raw metrics, CHAT delivers stronger recent performance and higher income but does so at the price of steeper fees, greater volatility, and reduced diversification. VGT, for its part, offers cost efficiency, broad sector coverage, and a lower risk profile, though it has lagged in the latest 12-month window. The selection between the two ultimately hinges on whether an investor prioritizes targeted exposure to generative AI’s potential or prefers a wide-ranging technology allocation anchored by minimal expenses. Each fund’s distinct structure, fee schedule, and performance history supply the critical inputs needed to make that decision.

Crédito da imagem: Roundhill Investments / Vanguard