The chief executive of one of Europe’s largest asset managers has urged investors to avoid being over-reliant on general online chatbots to manage their portfolios, as it increases the risk of losses.

Speaking at Allianz GI’s media day in Frankfurt, Tobias Pross, chief executive of Allianz GI, warned that relying on public online models, such as Claude, to make investment decisions can lead to identical outcomes, creating a pattern similar to passive investing.

Passive investing is a long-term strategy aimed at gradually building wealth, but instead of picking individual stocks, investors buy and hold broad, low-cost index funds that typically track a market benchmark.

Pross said: “Let’s assume we all invest in a passive exchange-traded fund…we will all get the same outcome. That’s called socialism.”

“Everybody uses Claude… if you use exactly the same prompt I do, you will get the same outcome.”

In contrast, active investing allows both investors and fund managers to track stock performance in an attempt to outperform the broader market and avoid the concentration trap.

Investors make decisions based on market trends, economic shifts and companies’ financial and corporate performance.

The asset manager, which reported €598bn (£517.3bn) in assets under management in its latest results, is developing its own large language models, consolidating data into a single platform, in a bid to get clients to turn away from general AI models.

The platform is set for completion by the end of the year. 

The problem with passive

Asset managers have been raising the alarm over the use of chatbots in investing, particularly as popular markets, including the S&P 500, become increasingly concentrated.

This means the vast majority of index capital flows into a few mega-cap stocks, leaving passive investors exposed to a potential crash, as the funds hold weight based on market capitalisation, which causes more capital to be fed to large companies.

Passive investors were stung as recently as last week amid tech jitters on Wall Street, with many funds exposed to big tech triggering a sudden sell-off and damaging portfolio performance.

Pross urged investors “to separate the noise” and not “stupidly follow the index” when investing, instead encouraging a more active approach.

In particular, younger Brits are increasingly turning to AI for investing tips, with young men most likely to use a chatbot.

Investors admitted to using AI over professional advice, citing high costs and complexity, as well as a lack of accessibility to advisers.

SpaceX’s future

Concerns surrounding passive investment have also swelled following SpaceX’s IPO, with some asset managers questioning when Elon Musk’s space tech company will be a fixture in index funds.

James Flintoft, head of investment solutions at AJ Bell, said: “If your portfolios include Nasdaq-100 trackers, FTSE Russell-based products, MSCI World or MSCI All Country funds, those products will acquire exposure within weeks of listing. 

The initial weighting will be measured in basis points given the constrained free float, but as lockup tranches release over the following six months, the weighting will grow, depending on how the share price performs.

“SpaceX may become part of the opportunity in time, but its absence at launch from portfolios reflects disciplined index construction rather than a missed investment case,” Flintoft added.