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

Jan Annaert and Gertjan Verdickt

Explorations in Economic History, 2021, vol. 79, issue C

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; Investor behavior (search for similar items in EconPapers)
JEL-codes: G11 N2 N23 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.eeh.2020.101378

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