The Lindsell Train Investment Trust (LTIT) has decided to scrap its controversial gilts benchmark after bagging £5.3m in performance fees.
The board of directors confirmed the £283m trust, run by Nick Train (pictured), Michael Lindsell and James Bullock, would be adopting a new benchmark, the MSCI World Index in sterling, with effect from 1 April 2021.
Its performance had been pegged against the annual average running yield on the longest-dated UK government fixed rate bond plus 0.5% with a minimum yield of 4%, despite it being in the IT Global sector.
LTIT’s unconventional benchmark has raised eyebrows, with critics claiming it was a low hurdle and an irrelevant comparison for people investing in global equities.
When questioned by Portfolio Adviser a Lindsell Train spokesperson insisted it was “appropriate” for the trust’s objective to “maximise long-term total returns with a minimum objective to maintain the real purchasing power of sterling capital”.
However, Lindsell Train reversed its stance on Friday, stating that MSCI World Index in sterling was a more appropriate benchmark after all “given the nature of the company’s portfolio, which is predominantly invested in equities and is likely to remain so for the foreseeable future”.
Gilts benchmark bags LTL £5.3m in performance fees
The switchover comes after the board revealed LTIT had raked in £5.3m in performance fees for the year ended 31 March 2021.
This was higher than the performance fees for the financial years ending in 2018 and 2019 combined. In its 2020 set of results, which coincided with the onset of the Covid crisis, the trust chose to waive its £448,679 worth of performance fees.
While the trust yielded a bumper pay day for Lindsell Train, its performance over the period was only slightly better than the MSCI World. Data from FE Fundinfo shows it returned 39% in share price terms compared to the MSCI World’s 38.4% and the IT Global average of 39.2%.
On Friday the board said Train and Lindsell’s boutique had offered to waive halve the performance fees for the year, bringing the total to £2.7m.
Looking ahead the board said it expects performance fees would be lower using the new benchmark than if they were calculated using the trust’s former index but added “there is no guarantee that this will be the case”.
The board said it would also be changing the calculation of the performance hurdle by excluding dividends, which will raise the level of fees payable.
However it deemed the change “fair for shareholders” with the level of fees “likely to be more than offset by the downward effect expected by the change in benchmark”.
