UK investment trust portfolio strategies before the First World War

Sotiropoulos, Dimitris; Rutterford, Janette and Keber, Carolyn (2020). UK investment trust portfolio strategies before the First World War. Economic History Review, 73(3) pp. 785–814.



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 in detail their portfolio strategies 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.

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