Lindsell Train silent on £2.4m performance fee as it cuts charges

Global equities investment trust uses bond benchmark to calculate performance fee

The Lindsell Train Investment Trust has boasted that it is slashing 5 basis points from its management fees even though performance fees based on a bond benchmark deliver most of its fee revenue.

The annual results for the closed-ended fund revealed the management fee will drop from 0.65% to 0.60%. The lower fee will be applied at the beginning of July and coincides with similar fee cuts across its stable of open-ended funds, the board of the investment trust said.

However, the bulk of the investment trust’s fee revenue comes from a performance charge based on a long-dated government bond benchmark. While the investment trust sits in the Investment Trusts Global sector, it used 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.

That netted the Lindsell Train Investment Trust £2.43m in the last financial year, compared to £1.1m reaped from the management charge.

While the investment trust still managed to beat the 12% delivered in the MSCI World Index in sterling terms, it far more substantially outperformed the 4% benchmark its fees are based on.

Chairman Julian Cazalet hailed the results for the year to 31 March 2019 as “another successful one for the company”. “This strong positive performance earned Lindsell Train Limited (‘LTL’), the manager, a performance fee of £2.43m for the year,” he said.

Benchmark is not challenging

“The benchmark is not challenging and doesn’t reflect the choice investors are making,” said Willis Owen head of personal investing Adrian Lowcock of the fund’s outperformance compared to long-dated UK government bonds.

“They invest in the trust because they have decided to invest in shares so it is not an alternative to government bonds. The trust has performed well, although it stands at a significant premium and Nick Train is an excellent manager, but fees should be relevant to the service being offered.”

The fees collected in 2019 are 14% lower than the year before when Lindsell Train bagged £2.8m after NAV grew by 30%.

Management fee chop

Cazalet said that “low fees are a vital ingredient” to ensure the company’s competitive success over the long-term.

Though Cazalet stressed the trust “has always been and remains an institutional business” he said in recent years it has seen growing interest from retail and IFA investment platform clients, which now make up over 40% of funds under management (FUM).

Portfolio Adviser reached out to Lindsell Train for comment but did not hear back in time.

Last year, the fund house told Portfolio Adviser the bond benchmark was 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”.

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