Go Active or Stay Passive: Investment Trust, Financial Innovation and Diversification in Belgium's early days

45 Pages Posted: 24 Oct 2019

See all articles by Jan Annaert

Jan Annaert

University of Antwerp Department of Accounting & Finance; University of Antwerp - Antwerp Management School

Gertjan Verdickt

Monash University - Department of Banking and Finance; University of Antwerp - Department of Accounting & Finance

Date Written: September 20, 2020

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.

Keywords: Diversification, Investment trusts, Financial innovation, Price anchoring

JEL Classification: N2, N23, G11

Suggested Citation

Annaert, Jan and Verdickt, Gertjan, Go Active or Stay Passive: Investment Trust, Financial Innovation and Diversification in Belgium's early days (September 20, 2020). Available at SSRN: https://ssrn.com/abstract=3466063 or http://dx.doi.org/10.2139/ssrn.3466063

Jan Annaert

University of Antwerp Department of Accounting & Finance ( email )

Faculty of Applied Economics
Prinsstraat 13
Antwerp, B-2000
Belgium

HOME PAGE: http://https://www.uantwerp.be/en/staff/jan-annaert/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Gertjan Verdickt (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

University of Antwerp - Department of Accounting & Finance ( email )

Faculty of Applied Economics
Prinsstraat 13
Antwerp, B-2000
Belgium

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