Over the first half of 2015 Acorn Income Fund generated a return on its gross assets of 11.9% – marginally ahead of the 11.8% return posted by the Numis Smaller Companies Index (ex investment companies). Thanks to the gearing effect of the zeros, the total NAV return on the ordinary shares was 16.3%. The return to ordinary shareholders was 16.8%, reflecting a small narrowing of the discount from 9.2% to 8.9%.
The dividend on the ordinary shares rose from 6.25p to 6.75p.
The allocation to smaller companies increased from 75% to 77.5% over the period. The manager says the strongest contributors to performance during the period came from Acal, the specialist electrical components distributor, which ended the period 29% higher; Epwin, the manufacturer of PVC products for the construction industry,
which was up 35%; and Alumasc, the supplier and manufacturer of aluminium building products, which saw a rise of 37%.
The largest and only meaningful negative contribution to performance came from Telecom Plus, which fell by 11% during the period. The group was affected by lower energy usage during a period of warmer weather, lower energy prices reducing the rate of customer acquisition, and theft and leakage from the gas distribution network running at a level higher than previously anticipated.
Protection was taken through a put spread on the FTSE 100 Index. Acorn bought a put option on the FTSE 100 Index at an Index level of 7000 (the level at which the Index was trading at that time) and sold a put option at an Index level of 6000. Selling the put reduced the cost of the overall transaction but also limits the return the strategy could generate in a falling market. The options were taken against £7m notional of FTSE 100 exposure at a net cost of £385,000. Both option positions were closed on 25 August 2015, when the FTSE 100 Index was trading at around 6000 and the protective effect of the trade had therefore largely been secured. The net proceeds from the closing of the position were approximately £655,000 and the profit arising from the transaction was equivalent to approximately 1.7p per ordinary share.
AIF : Acorn Income Fund cashes in on FTSE Hedge