3 Oct 2017 12:05
London, UK, 3 October 2017
Edison issues review on Acorn Income Fund (AIF)
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%.
At 2 October, AIF's ordinary shares traded at a 5.4% discount to cum-income net asset value, while the ZDPs stood at a 3.2% premium. The ordinary share discount has been relatively stable in recent months at c 4-6%, having experienced a period of greater volatility since early 2016, and has the potential to narrow further given the exceptional long-term performance record. AIF has a dividend yield of c 4%, which compares favourably with its closest AIC sector peer.
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