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Learning from one another's mistakes: investment trusts in the UK and US, 1868 - 1940

Rutterford, Janette (2009). Learning from one another's mistakes: investment trusts in the UK and US, 1868 - 1940. Financial History Review, 16(2) pp. 157–181.

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This article explores the development of the closed-end investment trust in both the UK and the US, in the context of the investment management strategies adopted and whether they provided value-added services for investors. Although US investment trusts of the 1920s boom years were heavily influenced by their earlier UK counterparts, they differed from British investment trusts in a number of key ways, in particular, size, capital structure, tax and accounting practices, management, and costs. These differences led to their relatively much worse performance in the stock market crash of the late 1920s and early 1930s. This poor US trust performance led directly to the creation of the US open-ended ‘fixed trust’, marketed as an antidote to the generally poor management of conventional closed-end investment trusts. As confidence in mutual funds slowly returned in the United States, open-ended funds were gradually given more flexibility, but US investment trust companies, with share prices at a steep discount to liquidation value, and partly blamed for the crash, were encouraged to convert to mutual fund status by the 1936 Revenue Act. By 1944, open-end funds had overtaken investment trusts in terms of asset size, a phenomenon that did not occur in Britain for another 30 years.

Item Type: Journal Item
Copyright Holders: 2009 Cambridge University Press
ISSN: 0968-5650
Academic Unit/School: Faculty of Business and Law (FBL) > Business > Department for Accounting and Finance
Faculty of Business and Law (FBL) > Business
Faculty of Business and Law (FBL)
Research Group: Innovation, Knowledge & Development research centre (IKD)
Item ID: 25410
Depositing User: Catherine Playle
Date Deposited: 13 Dec 2010 17:23
Last Modified: 07 Dec 2018 09:45
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