Acorn Income Fund
Board proposes change of mandate and manager
18 May 2021
The board of Acorn Income Fund (AIF) has announced the results of its strategic review ahead of the company’s five-yearly discontinuation vote in August. It is proposing to change the mandate from its present c 75% in UK smaller companies and c 25% in income-producing assets to a global equity income fund focused on sustainability and positive impact, managed by BMO Global Asset Management rather than the current partnership between Unicorn Asset Management and Premier Miton. AIF’s approach of investing in well-financed, income-generating and often domestically oriented small caps had led to a period of underperformance, partly attributable to Brexit uncertainty but compounded by last year’s COVID-19 induced dividend cuts. However, returns have rebounded strongly in the past year (see chart) as investors have begun to reassess the UK equity market. The board advises that shareholders who favour the move to BMO should vote against discontinuation and in favour of the proposals at the AGM and EGM in August. A circular will be published in due course. MORE »
Looking ahead with cautious optimism
3 November 2020
Acorn Income Fund (AIF) has seen its NAV performance stabilise since the COVID-19 driven sell-off earlier this year, although it remains considerably below its 12-month high, suggesting significant recovery potential. Small-cap portfolio managers Simon Moon and Fraser Mackersie point to the robust balance sheets of the companies they own, many of which have continued to pay dividends while some UK blue-chips have cut payments; they have also added to their own holdings in AIF given the attractive 8.8% dividend yield. In the income portfolio (c 25% of assets), managers Chun Lee and Robin Willis have taken advantage of better-value sterling bonds and high-yielding investment companies at deep discounts, helping AIF to support another year of dividend growth (part-funded from reserves). MORE »
Small-cap growth backed by c 5% yield
24 January 2020
Acorn Income Fund (AIF) saw a significant bounce back in performance during 2019, boosted by greater clarity on Brexit following December’s general election. In what was also a good year for the operational performance of companies in AIF’s small-cap portfolio (c 77% of assets), the fund ended the year with an NAV total return of 27.4%. This was ahead of the benchmark and more than made up for losses in 2018, meaning the fund has also regained its medium- and longer-term record of outperformance. While the smaller companies managers (Simon Moon and Fraser Mackersie at Unicorn Asset Management) are very positive on the prospects for both capital and income in the year ahead, the income portfolio managers (Chun Lee and Robin Willis at Premier Miton) are less sanguine, and remain focused on absolute returns as a result. MORE »
Executive Interview
5 July 2019
High-yielding fund with recovery potential
25 April 2019
Acorn Income Fund (AIF) is one of the best-performing funds in the AIC universe over the past 10 years. However, it suffered a period of poor performance in 2018, as its high level of structural gearing compounded the ill effects of a sell-off in UK small-cap equities, in which c 75% of its portfolio is invested. The managers of the small-cap portfolio, Simon Moon and Fraser Mackersie at Unicorn Asset Management, remain very positive on the outlook, citing highly attractive valuations for the kinds of profitable, cash-generative, dividend-paying companies they seek. Meanwhile, the managers of AIF’s income portfolio (Paul Smith and team at Premier Fund Managers) are focused on generating absolute returns from a diversified selection of short-dated bonds, investment companies and structured notes. MORE »
Income and growth with UK small-cap bias
6 June 2018
Acorn Income Fund (AIF) is relatively unusual in that it seeks to generate a high income from investing predominantly in smaller companies, a sector more often seen as high-growth and lower yielding. The fund has a dual-portfolio structure, with c 70-80% invested in a portfolio of up to 50 well-financed, cash-generative UK small-caps (biased to those under £500m market cap), and the balance in an income portfolio of securities such as bonds, investment companies and structured notes. While the unexpected failure in March of former largest holding Conviviality highlights the risks inherent in equity investment, strong growth in capital and income from the rest of the portfolio has compensated in absolute terms. AIF’s long-term performance record remains impressive, with an NAV total return almost 150pp above that of its closest peer over 10 years. AIF currently yields 4.0%. MORE »
Small-cap portfolio drives compelling returns
3 October 2017
Acorn Income Fund (AIF) targets a high income and the opportunity for capital growth by investing the majority of its assets in smaller quoted UK companies, with up to 30% in a portfolio of higher-yielding securities such as bonds, preference shares, investment companies and structured notes. Its long-term performance record is compelling, with 10-year share price and NAV total returns of c 270-280%, and it also ranks second or first in its peer group (AIC UK Equity & Bond Income) for NAV total returns over one, three and five years. The fund is structurally geared using zero-dividend preference shares (ZDPs), which were refinanced in early 2017, extending their life until 2022 at a much lower gross redemption yield of 3.85% (previously 6.5%), meaning ordinary shareholders feel the benefit of gearing more quickly in a rising market. Hedging may be used to reduce risk in either portfolio, and AIF’s ordinary shares currently yield c 4%. MORE »
Managers broadly positive for small caps in 2017
9 January 2017
Acorn Income Fund (AIF) aims to achieve a high income and potential for capital growth by investing 70-80% of its assets in a portfolio of well-financed UK smaller companies with attractive valuations and dividend growth, and 20-30% in high-yielding securities to add income and reduce capital risk. While long-term performance has been strong, the immediate aftermath of the UK’s vote to leave the EU caused a decline in domestically focused small caps. Since the half-year (30 June), AIF’s NAV has recovered well and now stands at an all-time high; in contrast, the share price is more than 7% below its 12-month high, suggesting scope for the wider-than-average discount to narrow. AIF gears its portfolio using zero-dividend preference shares (ZDPs); shareholders recently approved a proposal to extend the life of the ZDPs to February 2022 at an accrual rate of 3.85% pa. MORE »
Finding opportunities in small-cap dividend payers
19 September 2016
Acorn Income Fund (AIF) has produced solid long-term total returns (+138% share price and +135% NAV over five years) from its portfolio of UK smaller companies (70-80% of assets) and high-yielding securities (20-30%). The first half of 2016 has been a more challenging period, but over the latter part of the summer AIF has begun to reassert its trend of outperformance versus its benchmark. The allocation to the small-cap portfolio has been increased to the maximum 80% as the managers continue to find well-financed, dividend-paying smaller companies at attractive valuations. The current wider than average discount may reflect a degree of uncertainty ahead of the forthcoming five-yearly discontinuation vote; investors are reminded to vote against the special resolution if they wish to back the continuation of the company. MORE »
Back on top after small-cap renaissance
10 December 2015
Acorn Income Fund (AIF) has come through a period of change with its impressive long-term record intact. The death of founding small-cap portfolio manager John McClure in June 2014 caused uncertainty and a widening in the discount, but co-managers Simon Moon and Fraser Mackersie at Unicorn Asset Management have provided continuity of management, and stock selection has driven outperformance and a re-rating in the shares. The fund blends the small-cap allocation with an income portfolio managed by Paul Smith at Premier Fund Managers, which helps boost income and reduce volatility. MORE »
Green shoots of recovery
11 February 2015
Acorn Income Fund (AIF) seeks a high income and the possibility of growth from a portfolio split between small-cap equities (70-80%) and high-yield bonds (20-30%). Long-term performance has been exceptional, with NAV total returns of c 200% over five years. A combination of deteriorating sentiment towards smaller companies and investor uncertainty following the death of founding small-cap portfolio manager John McClure in June 2014 caused the discount to widen. McClure’s co-managers provide continuity of management and, with recent NAV performance looking better, there is scope for the shares to re-rate to a level more in line with long-term averages. MORE »
Continuity after death of John McClure
12 June 2014
Since this note was originally published, John McClure – who had managed the small-cap portfolio of AIF since launch, first at Granville Asset Management and later at Unicorn Asset Management – passed away on 7 June 2014. Simon Moon and Fraser Mackersie, who had worked with McClure on the trust since 2008 and were named as co-managers in December 2013, will continue to manage the portfolio together. MORE »
Outperformance continues after strong run
30 May 2014
Acorn Income Fund (AIF) targets a high level of income and the opportunity for capital growth from a portfolio split roughly 80%/20% between UK smaller companies and a global income pool investing in bonds and other high-yielding securities. The trust has a relatively high level of gearing (c 39% net) through zero-dividend preference shares. The low-turnover approach and focus on cash-generative businesses in the small-cap portfolio has seen its long-term trend of outperformance continue in a rising market, and the trust has grown in size significantly during the past year through the issuance of new shares and ZDPs. MORE »
Strong performance from equity biased portfolio
28 October 2013
Acorn Income Fund (AIF) targets a high level of income and aims to generate both income and capital growth from a mixed portfolio of smaller-cap UK-listed equities, an income portfolio of fixed-interest securities and investments in high-yielding investment companies. AIF has clearly outperformed its benchmark and peer group, over the last four years, which is now reflected in strong demand for its shares. The shares remain appealing for investors who share the managers' positive view on the market and are attracted by a trust where selective small company exposure and gearing (41% net) is leavened by fixed-income holdings that also bolster dividends. MORE »
High yield and capital performance
26 March 2013
Acorn Income Fund (AIF) targets a high level of income and aims to generate both income and capital growth from a mixed portfolio of smaller cap UK-listed equities (70%-80%), and an income portfolio of fixed-interest securities, and investments in high-yielding investment companies (together 20%-30%). It is benchmarked against the Numis Smaller Companies Index (ex-investment companies). The income portfolio supports dividend-paying capacity and provides some off-set to the NAV volatility implied by a concentrated portfolio of equities (30-40) and relatively high gearing (52% gross, including the zero dividends preference shares (ZDPs)). AIF has built up an impressive long-term record of outperformance of its benchmark (AIF has beaten the index by more than 15% over the past year), and is now looking to expand its asset base. AIF is seeking shareholder approval to issue new ordinary shares and ZDPs. MORE »
