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Scottish Mortgage cuts fee as it enters FTSE 100

Scottish Mortgage cuts fee as it enters FTSE 100

Scottish Mortgage (SMT) has marked its promotion to the FTSE 100 by cutting the annual management fee it pays fund manager Baillie Gifford.

Since 2014 the global investment trust has a flat management fee of 0.3% giving it a total on-going charge of 0.45% when other expenses are included.

Under the new arrangement from April it will continue to pay 0.3% on the first £4 billion of its £5.2 billion of assets but on the remainder the charge will fall to 0.25%. This will trim the on-going charge to 0.44% although it may fall further if the trust continues to grow.

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.’

The asset growth in Scottish Mortgage in the past year ensures Anderson and Baillie Gifford will continue to earn good money despite the cut in fee.  

According to the trust's interim financial report for the six months to October, Baillie Gifford earned £6.7 million, up from £5.5 million a year earlier, for managing SMT when its assets were £4.8 billion. By comparison, over the full year to April 2016 it received £11.5 million on assets of £4 billion.

Charges comparison

Scottish Mortgage's move puts a bit more distance between it and its rivals in the global sector, who according to Association of Investment Companies' (AIC) data, levy an ongoing charge of 0.73%.

SMT is not the cheapest global trust, however. That honour goes to Independent (IIT), which charges just 0.34% and is run by Max Ward, who was Anderson's predecessor on Scottish Mortgage. He set up Independent 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.

 Bankers' (BNKR) claims third spot with an ongoing charge of 0.52%, according to the AIC.

Once performance fees are incorporated, Lindsell Train (LTI) represents the most expensive trust in the sector with an ongoing charge of 1.72%, according to the AIC. 

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.

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