6 Jun 2018 10:43
London, UK, 6 June 2018
Edison issues review on Acorn Income Fund (AIF)
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%.
At 4 June 2018, AIF's ordinary shares traded at a 1.7% discount to cum-income NAV. This is narrower than both short and longer-term averages (4.2%, 5.4%, 5.0% and 9.8% respectively over one, three, five and 10 years), though wider than a 12-month low of 0.1% seen in mid-March. The 4.0% dividend yield (supported by strong dividend growth coming from the small-cap portfolio) arguably helps limit the discount, which could narrow further if the positive performance record is maintained.
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