Scottish Mortgage ( SMT) has cut its management fee after entering the FTSE 100 index.
Scottish Mortgage, which has over £5 billion in assets and is managed by Baillie Gifford, will introduce a tiered charging structure from 1 April. A fee of 0.3% will be levied on the first £4 billion of assets, falling to 0.25% thereafter.
Since 2014, the trust has charged a flat annual management fee of 0.3%. The trust’s ongoing charge is currently 0.45%. This figure takes into account the drag on performance caused by operational expenses.
James Anderson (pictured), co-manager of the trust, said: ‘We’re thrilled by the progress over the decade since Scottish Mortgage became a genuinely global trust. The opportunities ahead are compelling but we need to keep improving and cutting costs is a vital and underestimated part of this process.’
According to Scottish Mortgage’s interim financial report for the six months to October, the investment management fee totalled £6.7 million, up from £5.5 million over the corresponding period in 2015. At this point, total assets were £4.8 billion. Over the year to April 2016, investment management fees amounted to £11.5 million on assets of £4 billion.
Charges comparison
The average trust in the Association of Investment Companies’ (AIC) global sector has an ongoing charge of 0.73%, taking into account performance fees.
Independent investment trust (IIT ) represents the cheapest fund in sector, with an ongoing charge of 0.34%, according to the AIC. It is managed by Maxwell Ward, who was James Anderson’s predecessor on Scottish Mortgage. He set up Independent investment trust in 2000 after leaving Baillie Gifford.
Scottish Mortgage is the joint second cheapest trust in the sector at 0.45% alongside Law Debenture (LWDB ), managed by James Henderson.
F&C Global Smaller Companies (FCS ) claims third spot with an ongoing charge of 0.5%. However, when its performance fee is accounted for its ongoing charge increases to 0.75%. By comparison, Bankers’ (BNKR ) ongoing charge is 0.52% and it does not have a performance fee.
Once performance fees are incorporated, Lindsell Train (LTI ) represents the most expensive trust in the sector with an ongoing charge of 1.72%. Managers Nick Train and Michael Lindsell receive 10% of any growth in the lower of the NAV or market value of Lindsell that is above the average running yield on the 2.5% consolidated UK government bond. Growth that is generated by an expanding share price premium is held back until the following year and is paid only if there has been a rise in the NAV.
The annual management fee is 0.65% of the investment trust’s net asset value, or, if lower, its market value. Lazard World Trust fund (WTR ) represents the second most expensive at 1.39%, which also takes into account its performance fee.
Scottish Mortgage will enter the UK’s blue-chip index when its consituents are rebalanced later this month. The trust, along with pest control company Renokil Initial, has unseated Capita (CPI) and Dixons Carphone (DC) from the index.