IDEAS home Printed from https://ideas.repec.org/a/bla/ehsrev/v73y2020i3p785-814.html
   My bibliography  Save this article

UK investment trust portfolio strategies before the First World War

Author

Listed:
  • Dimitris P. Sotiropoulos
  • Janette Rutterford
  • Carolyn Keber

Abstract

UK investment trust companies were at the forefront of financial innovation during the so‐called first globalization era before the First World War. This study examines their portfolio strategies in detail, using a unique dataset of 115 portfolio observations for 30 different investment trust companies, comprising a total of 32,708 portfolio holdings. Our results reveal strong performance and relatively sophisticated asset management, which was based on a mixture of a buy‐and‐hold investment strategy and active portfolio management. Investment trusts employed global rather than domestic diversification. The early predominant investment in bonds in the 1880s gradually declined in favour of ordinary and preferred shares. North and Latin American markets were the main geographical target of UK investment trusts, with less appetite for domestic investments and negligible interest in continental European financial securities. There is significant cross‐sectional variation in asset allocation between investment trusts; they thus avoided herding behaviour in portfolio choice and developed a wide range of different portfolio strategies.

Suggested Citation

  • Dimitris P. Sotiropoulos & Janette Rutterford & Carolyn Keber, 2020. "UK investment trust portfolio strategies before the First World War," Economic History Review, Economic History Society, vol. 73(3), pages 785-814, August.
    • Handle: RePEc:bla:ehsrev:v:73:y:2020:i:3:p:785-814
    DOI: 10.1111/ehr.12994
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ehr.12994
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ehr.12994?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Grossman, Richard & Campbell, Gareth & Turner, John, 2019. "Before the Cult of Equity: New Monthly Indices of the British Share Market, 1829-1929," CEPR Discussion Papers 13717, C.E.P.R. Discussion Papers.
    2. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
    3. Brian Mitchell & David Chambers & Nick Crafts, 2011. "How good was the profitability of British railways, 1870–1912?," Economic History Review, Economic History Society, vol. 64(3), pages 798-831, August.
    4. Edlinger, Cécile & Merli, Maxime & Parent, Antoine, 2013. "An Optimal World Portfolio on the Eve of World War I: Was There a Bias to Investing in the New World Rather Than in Europe?," The Journal of Economic History, Cambridge University Press, vol. 73(2), pages 498-530, June.
    5. Leslie Hannah, 2018. "The London Stock Exchange, 1869–1929: new statistics for old?," Economic History Review, Economic History Society, vol. 71(4), pages 1349-1356, November.
    6. Miguel A. Ferreira & Aneel Keswani & António F. Miguel & Sofia B. Ramos, 2013. "The Determinants of Mutual Fund Performance: A Cross-Country Study," Review of Finance, European Finance Association, vol. 17(2), pages 483-525.
    7. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, June.
    8. Baker, Mae & Collins, Michael, 2003. "The asset portfolio composition of British life insurance firms, 1900 1965," Financial History Review, Cambridge University Press, vol. 10(02), pages 137-164, October.
    9. Hany A. Shawky & David M. Smith, 2005. "Optimal Number of Stock Holdings in Mutual Fund Portfolios Based on Market Performance," The Financial Review, Eastern Finance Association, vol. 40(4), pages 481-495, November.
    10. Chambers, David & Dimson, Elroy & Foo, Justin, 2015. "Keynes the Stock Market Investor: A Quantitative Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(4), pages 843-868, August.
    11. Leslie Hannah, 2015. "Rethinking Corporate Finance Fables: Did the US Lag Europe before 1914?," CIRJE F-Series CIRJE-F-994, CIRJE, Faculty of Economics, University of Tokyo.
    12. Ann M. Carlos & Erin Fletcher & Larry Neal, 2015. "Share portfolios in the early years of financial capitalism: London, 1690–1730," Economic History Review, Economic History Society, vol. 68(2), pages 574-599, May.
    13. Annaert, Jan & van den Broeck, Julien & Vander Vennet, Rudi, 2003. "Determinants of mutual fund underperformance: A Bayesian stochastic frontier approach," European Journal of Operational Research, Elsevier, vol. 151(3), pages 617-632, December.
    14. Chambers, David & Esteves, Rui, 2014. "The first global emerging markets investor: Foreign & Colonial Investment Trust 1880–1913," Explorations in Economic History, Elsevier, vol. 52(C), pages 1-21.
    15. Sotiropoulos, Dimitris P. & Rutterford, Janette, 2018. "Individual Investors and Portfolio Diversification in Late Victorian Britain: How Diversified Were Victorian Financial Portfolios?," The Journal of Economic History, Cambridge University Press, vol. 78(2), pages 435-471, June.
    16. Janette Rutterford & Dimitris P. Sotiropoulos, 2016. "Financial diversification before modern portfolio theory: UK financial advice documents in the late nineteenth and the beginning of the twentieth century," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 23(6), pages 919-945, November.
    17. Hannah, Leslie, 2018. "The London Stock Exchange, 1869-1929: new statistics for old?," LSE Research Online Documents on Economics 90547, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Choijil, Enkhbayar & Méndez, Christian Espinosa & Wong, Wing-Keung & Vieito, João Paulo & Batmunkh, Munkh-Ulzii, 2022. "Thirty years of herd behavior in financial markets: A bibliometric analysis," Research in International Business and Finance, Elsevier, vol. 59(C).
    2. Verdickt, Gertjan & Deloof, Marc, 2024. "Banking on innovation: Listed and non-listed equity investing, evidence from société générale de Belgique, 1850–1934," Explorations in Economic History, Elsevier, vol. 93(C).
    3. Annaert, Jan & Verdickt, Gertjan, 2021. "Go active or stay passive: Investment trust, financial innovation and diversification in Belgium's early days," Explorations in Economic History, Elsevier, vol. 79(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David A Bogle & Christopher Coyle & John D Turner, 2022. "Capital market development over the long run: the portfolios of UK life assurers over two centuries [Corporate ownership and control in Victorian Britain]," European Review of Economic History, European Historical Economics Society, vol. 26(3), pages 370-398.
    2. van Hombeeck, Carlos Eduardo, 2020. "An exorbitant privilege in the first age of international financial integration?," Journal of International Money and Finance, Elsevier, vol. 101(C).
    3. Juan Carlos Matallín-Sáez & Amparo Soler-Domínguez & Emili Tortosa-Ausina, 2019. "Does active management add value? New evidence from a quantile regression approach," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 70(10), pages 1734-1751, October.
    4. Annaert, Jan & Verdickt, Gertjan, 2021. "Go active or stay passive: Investment trust, financial innovation and diversification in Belgium's early days," Explorations in Economic History, Elsevier, vol. 79(C).
    5. Alda, Mercedes, 2018. "A strategic fund family business decision: The pension fund liquidation," Journal of Business Research, Elsevier, vol. 91(C), pages 248-265.
    6. Maxime MERLI & Antoine PARENT, 2022. "Portfolio Diversification During the Belle Époque: When the Actual Portfolios of French Individual Investors Met Behavioral Finance," Working Papers of LaRGE Research Center 2022-01, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    7. Cécile EDLINGER & Maxime MERLI & Antoine PARENT, 2018. "Financial Diversification before WW1 : A Risk/Return Analysis of Portfolio’s Advice of French Financial Analyst Alfred Neymarck," Working Papers of LaRGE Research Center 2018-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    8. Acheson, Graeme G. & Campbell, Gareth & Gallagher, Áine & Turner, John D., 2018. "Independent women: Shareholders in the age of the suffragettes," QUCEH Working Paper Series 2018-09, Queen's University Belfast, Queen's University Centre for Economic History.
    9. Galán, Jorge & Ramos, Sofía B. & Veiga, Helena, 2015. "An analysis of the dynamics of efficiency of mutual funds," DES - Working Papers. Statistics and Econometrics. WS ws1517, Universidad Carlos III de Madrid. Departamento de Estadística.
    10. Aggarwal, Rajesh K. & Jorion, Philippe, 2010. "The performance of emerging hedge funds and managers," Journal of Financial Economics, Elsevier, vol. 96(2), pages 238-256, May.
    11. J. Alsubaiei, Bader & Calice, Giovanni & Vivian, Andrew, 2021. "Sovereign CDS and mutual funds: Global evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    12. Cuthbertson, Keith & Nitzsche, Dirk & O'Sullivan, Niall, 2016. "A review of behavioural and management effects in mutual fund performance," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 162-176.
    13. Anastasia Petraki & Anna Zalewska, 2013. "With whom and in what is it better to save? Personal pensions in the UK," The Centre for Market and Public Organisation 13/304, The Centre for Market and Public Organisation, University of Bristol, UK.
    14. Ayadi, Mohamed A. & Kryzanowski, Lawrence & Mohebshahedin, Mahmood, 2018. "Impact of sponsorship on fixed-income fund performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 121-137.
    15. DeMiguel, Victor & Gil-Bazo, Javier & Nogales, Francisco J. & Santos, André A.P., 2023. "Machine learning and fund characteristics help to select mutual funds with positive alpha," Journal of Financial Economics, Elsevier, vol. 150(3).
    16. Kooli, Maher & Zhang, Min, 2022. "Not only skill but also scale: Evidence from the hedge funds industry," International Review of Financial Analysis, Elsevier, vol. 83(C).
    17. Szabolcs Szikszai & Tamas Badics, 2014. "Enhanced Funds Seeking Higher Returns," Working papers wpaper43, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    18. J. Carlos Matallín-Sáez & Amparo Soler-Domínguez & Emili Tortosa-Ausina, 2013. "Does active management add value? New evidence from a quantile regression," Working Papers 2013/01, Economics Department, Universitat Jaume I, Castellón (Spain).
    19. Feldman, David & Saxena, Konark & Xu, Jingrui, 2020. "Is the active fund management industry concentrated enough?," Journal of Financial Economics, Elsevier, vol. 136(1), pages 23-43.
    20. Nicolae Gârleanu & Lasse Heje Pedersen, 2018. "Efficiently Inefficient Markets for Assets and Asset Management," Journal of Finance, American Finance Association, vol. 73(4), pages 1663-1712, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ehsrev:v:73:y:2020:i:3:p:785-814. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ehsukea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.