Lindsell Train bags £3m fees on bond benchmark

Lindsell Train has defended its use of a government bond benchmark for its eponymous investment trust as it rakes in £2.8m in performance fees.

While the investment trust sits in the Investment Trusts Global sector, it uses the annual average running yield on the longest-dated UK government fixed rate bond plus a premium of 0.5% for its benchmark.

That is currently the UK Treasury 3.5% 2068.

The net asset value has increased 30% in the year ended 31 March, while the benchmark is 4%, which is the minimum, according to the investment trust’s annual report published on Tuesday.

The performance fees are marginally higher than 2017, when the investment trust returned 35.1%. Performance fees in the latest financial year were 2% of £139.5m net assets totaling £2,827,190, while in 2017 they were 2.7% of £105.4m totalling £2,819,626.

A Lindsell Train spokesperson told Portfolio Adviser the bond benchmark is appropriate because the trust’s investment objective is to “maximise long-term total returns with a minimum objective to maintain the real purchasing power of sterling capital”.

Architas investment director Adrian Lowcock said an inflation type of target is more commonly used by multi-asset funds.

“Beating 4% for an equities fund that’s not a particularly high benchmark to obtain. If you’re paying performance fees on the back of that, that’s a more serious concern,” Lowcock said.

He added: “Investors are effectively paying additional performance fees for something that isn’t necessarily outperforming what they’re investing in. If you’re an investor in a global equity fund your opportunity cost is against other global equity funds.”

The Lindsell Train Investment Trust outperformed the main global equity indices over the one-year period ended 31 March 2018. The FTSE All World returned 5.8%, while the MSCI AC World returned 5.3%.

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