XLK vs. CHAT: Broad Tech Exposure or a Focused AI Bet?

Core Viewpoint - The comparison between the Technology Select Sector SPDR Fund (XLK) and the Roundhill Generative AI and Technology ETF (CHAT) highlights the importance of understanding the differences in their investment strategies, particularly in the context of fluctuating AI valuations [1][10]. Cost and Size - XLK has a lower expense ratio of 0.08% compared to CHAT's 0.75%, making XLK a more cost-effective option for investors [4][5]. - As of January 27, 2026, XLK has a total return of 30.91% over the past year, while CHAT has significantly outperformed with a return of 63.06% [4]. Performance and Risk Comparison - CHAT has a higher maximum drawdown of -31.35% over two years compared to XLK's -25.65%, indicating greater volatility associated with CHAT [6]. - Despite its recent strong performance, CHAT's elevated beta suggests it carries higher risk, which may be a consideration for investors attracted to its AI focus [6]. Holdings and Strategy - CHAT is actively managed with 52 holdings, focusing heavily on generative AI, with 85% of its portfolio in technology [7]. - XLK offers a broader exposure with 70 holdings, including major U.S. tech companies, and does not apply an ESG screen, reflecting a more traditional investment approach [8]. Investor Implications - Investors seeking steady tech exposure without reliance on a single narrative may prefer XLK, while those intentionally targeting AI growth and willing to accept higher volatility may opt for CHAT [11][12]. - The choice between XLK and CHAT ultimately hinges on whether investors prioritize broad earnings power or a concentrated bet on a specific trend [12].