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Go active or stay passive: Investment trust, financial innovation and diversification in Belgium's early days

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  • Annaert, Jan
  • Verdickt, Gertjan

Abstract

In 1836, Société Générale created the world's first closed-end equity fund, Mutualité Industrielle. It promised to be a diversification tool targeted towards less-wealthy investors. We confirm that the trust's returns were indeed better than returns on synthetic portfolios such investors had access to. However, it never became a commercial success. This paper presents a possible rational explanation why this innovation was liquidated in 1873. First, we show that the trust offered a performance similar to randomly-selected portfolios. Second, portfolio strategies to which mostly wealthy and sophisticated investors had access were able to outperform the trust. Mutualité Industrielle's failure to offer a sufficiently attractive alternative to investors is consistent with its difficulty to attract sufficient funds to keep the trust in business.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:exehis:v:79:y:2021:i:c:s0014498320300802
    DOI: 10.1016/j.eeh.2020.101378
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    More about this item

    Keywords

    Diversification; Investment trusts; Financial innovation; Investor behavior;
    All these keywords.

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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