Finance London Paris Essay

12266 Words May 19th, 2013 50 Pages
1 Preliminary draft

The First Global Emerging Markets Investor: Foreign & Colonial Investment Trust 1880-1913

David Chambers and Rui Esteves∗

September 2011

Abstract: The Foreign and Colonial Investment Trust (FCIT) is the oldest surviving closed end fund in the world today. Its early success was related to its identification of a missing market, namely, the provision of a wholesale diversified investment vehicle for the investing public. Whilst much research has been conducted on aggregate international capital flows in this period, little work has been undertaken on the prime investment institutions. This micro-study seeks to fill this gap by undertaking detailed quantitative analysis of the leading investment trust
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Previous research has concentrated on the character and determinants of the aggregate capital flows from Britain (Edelstein 1982, Stone 1999) and Germany (Esteves 2007) and concluded that fundamentals such as longterm growth prospects were indeed important along with political risk and institutional conditions. FCIT was at the forefront of this wave of foreign investment. The early success of FCIT was related to its identification of a missing market – that for wholesale investment in diversified portfolios by the general public – particularly at a time when domestic securities were yielding historically low returns. The advantages of the mutual fund structure, first adopted by the Dutch in the 18th century (Rouwenhorst 2004), quickly became obvious and led FCIT to expand its investment horizons from the initial portfolio of “well-selected Government Stocks” to an array of foreign and colonial securities. By 1913, the fund reported holdings of 313 securities, 85% of which were corporate. Throughout the period, FCIT kept its focus on foreign securities in emerging markets, a strategy which was also emulated by many of the 61 investment trusts operating in London on the eve of World War I with a combined market capitalization of over £60 million (according to Investor’s Monthly

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