IC Top 100 Fund Acorn Income (AIF) has recently completed a £10m share issue, a mixture of ordinary and zero dividend preference shares. This could benefit existing shareholders because with costs spread across a wider share base the trust's ongoing charge of 2.62 per cent could fall. The trust has a base management fee of 0.7 per cent of total assets, but also a performance fee of 15 per cent of the ordinary share net asset value (NAV) return in excess of the benchmark.
The issue may also help meet demand for the shares which cannot be met in the secondary market and enhance the fund's ability to pay dividends, say analysts at Winterflood.
The ordinary shares and ZDPs issued will be in a ratio that maintains the current capital structure, and the new shares rank equally with the existing ones of their kind. The new ordinary shares will not be entitled to receive any dividends declared or paid prior to their allotment.
"The key benefit of the issue for existing shareholders is to improve the size and trading liquidity of the fund," adds Charles Cade, head of investment companies research at broker Numis Securities. "It is still a relatively small investment trust with net assets of around £50m and its board and managers are keen to grow it further in order to maintain liquidity for buyers and to limit the premium to NAV. As part of the proposals, the company can now issue up to 12m further new ordinary shares and 16m zero dividend preference shares, though the latter would only be issued in a ratio that kept the same gearing. This means that there should be liquidity for buyers of the ordinary shares at a small premium to NAV going forward."
So even if you did not take advantage of this issue there may be opportunities to buy into the trust in future, and maybe at a lower premium to NAV than secondary market shares. The trust currently trades at a premium to NAV of 4.25 per cent. After the trust increased its dividend last year from 7p a year to 12p, it moved from a discount to a premium.
"We expect the same level of dividends to be paid in 2013, with some scope for dividend growth in future," adds Mr Cade. "Acorn Income has an exceptional long term track record, with an NAV total return over the past decade of 565 per cent versus 158 per cent for the FTSE All Share and 344 per cent for the Numis Smaller Companies Index ex Investment Companies. Acorn may be a small fund but we believe it stands out for investors seeking a combination of yield and growth. The inherent gearing in the capital structure means that the fund's performance is likely to be strong in rising markets. Conversely, it may suffer in an equity market correction, albeit partly mitigated by the focus on high quality companies and the fixed interest portfolio."
Investors Chronicle tipped the fund in 2011 on the grounds it had an attractive yield, strong NAV performance and experienced managers, and had beaten many smaller company and UK equity income investment trusts. Read our tip
ACORN INCOME FUND (AIF) | |||
| PRICE | 301p | GEARING | 147% |
| FUND TYPE | Guernsey investment company | NAV | 291.05p |
| MARKET CAP | £26.91m | PRICE PREMIUM TO NAV | 4.25% |
| No OF HOLDINGS | 70* | YIELD | 2.33% |
| SET UP DATE | 11-Feb-99 | MORE DETAILS | www.premierfunds.co.uk |
| ONGOING CHARGE | 2.62% | ||
Source: Morningstar, *Premier
| Investment trust/index | 1 year share price total return (%) | 3 year share price total return (%) | 5 year share price total return (%) |
| Acorn Income Fund Ord | 51.72 | 123.24 | 118.78 |
| Aberdeen Smaller Cos High Inc Ord | 42.92 | 82.37 | 43.54 |
| Small Companies Dividend Ord | 54.52 | 88.33 | 38.30 |
| Numis SC 1000 Ex Invt Com TR GBP | 38.58 | 67.64 | 70.26 |
Morningstar as at 27 May 2013
TOP FIVE EQUITY HOLDINGS as at 30 April 2013
| Tyman | 5.9 |
| VP | 5.2 |
| British Polythene Industries | 5.1 |
| Diploma | 4.9 |
| Secure Trust Bank | 4.8 |
Top five income holdings as at 30 April 2013
| Real Estate Credit Preference Shares NPV | 5.15 |
| GE Capital | 4.76 |
| Credit Suisse 7.875% 24/02/2041 | 4.31 |
| Greenwich Loan Income Fund Ord | 4 |
| Kelda Finance 3 PLC 5.75 17/02/2020 | 3.77 |
