This AI ETF holds 19% of its portfolio in Nvidia, Google, and Microsoft

Consistently managing to pick out the winners and losers in an industry is a tall order — especially if the industry is young and growing rapidly. Artificial intelligence certainly fits the bill — but as the dot com bubble has shown, even getting in early on companies that are providing great capital appreciation at the moment isn’t a guarantee that your investments will pay off in the long term.

Investors are at an impasse — traditional, broad tech exchange-traded funds (ETFs) are usually too bogged down with underperforming tech companies — too little wheat, too much chaff. On the other hand, concentrating your holdings into just a couple of stocks is also ill-advised and risky.

Thankfully, as of recently, investors can take a middle-ground approach — the Roundhill Generative AI & Technology ETF (NYSEARCA: CHAT).

The fund began trading on May 18, 2023, and provides exposure to both high-profile AI stocks like Nvidia (NASDAQ: NVDA), Alphabet (NASDAQ: GOOGL), and Microsoft (NASDAQ: MSFT), as well as lesser-known but still prospective equities. 

CHAT holdings, fees, and performance

Before we proceed, readers should note that while the ETF in question has managed to outperform the S&P 500 in 2024 at the time of publication, it is still a relatively young investment product that was released in the midst of a bull market. Although it certainly has merit and is performing admirably, caution is advised.

CHAT consists of 49 stocks — which is pretty typical for a thematic fund. The aforementioned high-profile stocks — NVDA, GOOGL, and MSFT make up 18.84% of total holdings —at 8.32%, 5.31%, and 5.21% respectively.

In terms of fees, Roundhill’s investment vehicle comes with a 0.75% gross expense ratio on an annual basis — and while this is at the high end of what is considered average, it is still reasonable considering industry and performance. Investors should still be mindful, however, as high fees can significantly diminish returns over a long span of time.

Speaking of performance, CHAT has outperformed the S&P 500 on a year-to-date (YTD) basis — whereas the index is up 22.53% since January, the fund has netted a 28.72% return during this period.

Is CHAT the best AI diversification play?

The newly-minted investment product also provides exposure to Chinese, Taiwanese, and Japanese AI equities, as well as sympathy plays in the form of energy stocks such as Constellation Energy Corp. (NASDAQ: CEG) and NRG Energy (NYSE: NRG), but it is still a highly-concentrated thematic portfolio.

CHAT does provide a convenient way to diversify within a single sector — but it should ideally still be viewed as just one part of a larger, broader portfolio. The fund is highly sensitive, and would almost certainly see significant losses in the case of an AI pullback. 

For readers interested in securing AI profits on a regular basis, the YieldMax NVDA Option Income Strategy ETF (NYSEARCA: NVDY), with its monthly payments, just might be a better choice.

Featured Image:
Sergio Photone — February 17, 2023. Digital Image. Shutterstock.