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acorn income fund

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Acorn Income Fund

Income and growth with UK small-cap bias

Review | Investment Companies | 06 Jun 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%.

Acorn Income Fund

Small-cap portfolio drives compelling returns

Review | Investment Companies | 03 Oct 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%.

Acorn Income Fund

Managers broadly positive for small caps in 2017

Review | Investment Companies | 09 Jan 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.

Acorn Income Fund

Finding opportunities in small-cap dividend payers

Review | Investment Companies | 19 Sep 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.

Acorn Income Fund

Back on top after small-cap renaissance

Review | Investment Companies | 10 Dec 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.

Acorn Income Fund

Green shoots of recovery

Update | Investment Companies | 11 Feb 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.

Acorn Income Fund

Continuity after death of John McClure

Update | Investment Companies | 12 Jun 2014

Since this note was originally published, John McClure o who had managed the small-cap portfolio of AIF since launch, first at Granville Asset Management and later at Unicorn Asset Management o 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.

Acorn Income Fund

Outperformance continues after strong run

Update | Investment Companies | 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.

Acorn Income Fund

Strong performance from equity biased portfolio

Update | Investment Companies | 28 Oct 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.

JPMorgan Indian Investment Trust

Investment Trusts Quarterly: Asia

Sector Commentary: | - | 12 Jun 2013

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Acorn Income Fund

High yield and capital performance

Review | Investment Companies | 26 Mar 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.