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Scottish Mortgage cuts fees as it enters FTSE 100

Scottish Mortgage has made a cut to its management fee, which is already very low
March 9, 2017

IC Top 100 Fund Scottish Mortgage Investment Trust (SMT) has cut its annual management fee as it enters the FTSE 100 for the first time.

The Global sector investment trust will enter the FTSE 100 from the close of the market on 17 March.

Meanwhile, its board is cutting its management fee to reflect the growth in its size, and because the trust's manager, Baillie Gifford, has offered a further fee cut to the trust as part of ongoing efforts to leverage the benefits of increasing scale for shareholders, primarily through reducing costs. From 1 April, the trust will have a tiered fee: the annual management charge (AMC) will continue to be 0.3 per cent on the first £4bn of assets under management but fall to 0.25 per cent on those above that.

Broker Numis estimates that, based on its current gross assets of £5.2bn, the management fee cut could result in a 0.01 per cent drop in Scottish Mortgage's ongoing charge figure of 0.45 per cent.

"In April 2014, Scottish Mortgage's management fees were reduced from 0.32 per cent to 0.30 per cent a year of gross assets and, at that time, its board highlighted that further reductions would be considered if assets continued to grow," said analysts at Numis. "It is refreshing to see the manager cut fees again, even though the ongoing charges ratio is already among the lowest [among investment trusts]. Scottish Mortgage seeks to minimise discount volatility, buying back shares at a small discount and issuing at a premium to meet demand (the share capital has increased by 8.3 per cent over the past two years, reflecting strong retail demand)."

The trust has a long record of standout performance, having returned 302.8 per cent over 10 years, compared with 156.1 per cent for FTSE All World index.

 

Performance of Scottish Mortgage (cumulative share price total return %)

1yr3yr5yr10yr
Scottish Mortgage Investment Trust 38.8870.87177.80302.81
FTSE All World 37.2359.86103.10156.11
AIC Global sector average 34.8845.1986.23112.44

Source: FE Analytics, as at 7.03.17