AIF : Acorn Income Fund’s discount opened up during the first half of 2014
Acorn Income Fund‘s recent interims report a fractional fall in NAV during the period (359.97p to 359.20p) but, with a dividends totalling 6.25p, total return during the period was 1.52%. This was modestly behind the FTSE All-Share (1.59%) but ahead of the Numis Smaller Companies (ex Investment Companies) Index (-0.59%). However, share price performance during the period did not reflect the movement in AIF’s NAV. The ordinary shares started the year at a premium of 1.4% and finishing the first half on a discount of 8.27%, providing a share price total return of -8.12%. This may in part reflect the sad news of the passing of John McClure, the manager of the equity portfolio. John had been involved with managing AIF’s smaller companies portfolio since 1999 and was respected for the strong performance it has provided. Unicorn, managers of the small cap portfolio, report that the investment process remains unchanged and continues to be managed by Simon Moonand Fraser Mackenzie, who have supported John since 2008.
The manager of the fixed income portfolio, Paul Smith of Premier (pictured), believes that the expectation of rising interest rates has been priced into fixed interest markets for some time and continues to keep duration (a measure of sensitivity to movements in interest rates) below average for the sector. This is a precaution against a steeper or earlier rise in rates than the market anticipates. AIF expects default rates on bonds to remain low and opportunities to arise to exploit mispriced credit risks. The UK Smaller Companies Portfolio is positioned to benefit from a recovering domestic economy.