UK investment trusts and the Baring crisis

This study examines professional asset management in the UK in the 1880s and 1890s focusing on investment trusts during the financial episode of the Baring crisis. It draws upon a large and unique hand-collected dataset of portfolio holdings on a year-on-year basis, comprising 27,058 securities. Using an event analysis, our findings show that investment trusts were the only heavily affected sector in the UK due to their massive portfolio exposure to Argentina. Our analysis does not pick up any strong stock selection skills in the short run but reveals a longer-term investment perspective based on large fixed-income cash flows on both sides of the balance sheet and a ‘carry-trade’ on yields. Our results also provide evidence of well-informed shareholders of these trusts, who had a very clear idea of the underlying fundamentals of their investment.