Artificial intelligence continues to be a driver of growth within the equity markets, attracting significant investor interest. Within this landscape, several specialized exchange-traded funds (ETFs) compile portfolios of stocks aligned with AI and next-generation technology trends. While these ETFs often reflect the sector's underlying momentum, a subset is currently experiencing performance setbacks despite strong longer-term gains.
This evaluation focuses on three AI-centered ETFs: the Ark Next Generation ETF (ticker ARKW), the iShares Future Exponential Technologies ETF (ticker XT), and the Roundhill Generative AI & Technology ETF (ticker CHAT). Each has trailed the S&P 500's recent gains by recording negative returns over the past month.
Specifically, ARKW has declined by 1.06%, XT has decreased by 0.53%, and CHAT has fallen 1.40% in the same period, while the S&P 500 enjoyed positive returns. Despite these setbacks, an examination of their one-year returns reveals resilience: ARKW has posted a 38.7% gain, CHAT stands out with nearly 50%, and XT reflects a 26.2% increase, signaling that their recent underperformance may be a transient phase rather than a persistent trend.
Ark Next Generation ETF Overview
ARKW, overseen by Cathie Wood and managed by Ark Invest, is an actively managed fund that targets investments within the next-generation internet space. Launching September 30, 2014, the fund manages $2.1 billion in assets and levies an expense ratio of 0.76%, equating to $76 annually per $10,000 invested.
The fund's portfolio is heavily tilted toward technology stocks, representing 42% of its holdings, supplemented by communication services at 23%, consumer cyclical stocks at 17.8%, and financial services at 16.4%. It holds 44 stocks, with the top ten investments making up 51% of the total portfolio.
The largest holding is Tesla at 8.74%, followed by Roku (5.86%), Advanced Micro Devices (5.67%), Shopify (5.04%), Coinbase Global (4.87%), Robinhood Markets (4.82%), Palantir Technologies (3.75%), Alphabet (3.07%), Circle Internet Group (3.06%), and Roblox (3.02%).
iShares Future Exponential Technologies ETF Details
The XT ETF, administered by BlackRock Fund Advisors, represents companies utilizing or developing exponential technologies across developed and emerging markets. Established in March 2015, the fund is mainly managed by Jennifer Hsui along with other fund managers such as Peter Sietsema, Matt Waldron, and Steven White. It maintains a competitive expense ratio of 0.46%.
Technology stocks compose 38.9% of the fund, while healthcare contributes 28.7%. The remainder includes sectors such as financial services, communication services, industrials, and utilities. Unlike ARKW, XT holds a broader diversification with 200 stocks, and its top ten holdings account for 33% of the portfolio.
The leading assets include Eli Lilly (4.28%), Nvidia (3.93%), Microsoft (3.80%), Tesla (3.78%), Texas Instruments (3.56%), Amazon (3.13%), Analog Devices (3.11%), Johnson & Johnson (2.82%), Alphabet (2.47%), and AbbVie (2.31%).
Roundhill Generative AI & Technology ETF Profile
Managed by Roundhill Investments, CHAT is distinguished as the first ETF explicitly dedicated to generative AI technologies. Founded in May 2023, the fund currently manages assets totaling $1 billion and is overseen by six fund managers since inception. The expense ratio stands at 0.75%.
Technology stocks constitute the largest share in this fund at 72.3%, with communication services (20.1%) and consumer cyclical stocks (6%) comprising the remainder. Its portfolio contains 45 stocks, where the top ten holdings represent 44% of the total assets.
Notably, the ETF has significant weighting in prominent technology giants, including Alphabet (7.86%), Nvidia (6.24%), Microsoft (5.94%), SK Hynix (3.98%), Meta Platforms (3.96%), Samsung (3.59%), Amazon (3.47%), AMD (2.92%), Broadcom (2.91%), and Apple (2.86%). Unlike the other two ETFs, CHAT does not hold Tesla.
Investment Perspective
While these three AI-oriented ETFs have underperformed relative to the broader market over the recent month, their impressive one-year returns provide context that this weakness may be temporary. Each offers a diversified approach to AI investment, enabling access to multiple companies innovating within AI, technology, healthcare, and related sectors.
Investors seeking exposure to AI without concentrating risk in a single stock may find these funds compelling, especially considering the current market pullbacks that offer more attractive entry valuations than recent highs. The portfolio composition of each ETF provides different geographic, sector, and company-level exposures, allowing investors to select vehicles tailored to their preferences and risk profile.