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Acorn Income Fund (AIF)

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Monday 17 May, 2021

Acorn Income Fund

Proposed Change of Inv Objective, Policy and Manager

ACORN INCOME FUND LIMITED
 (a closed-ended investment company incorporated in Guernsey with registration number 34778)
LEI 213800UAZN7G46AHQM67

 

17 May 2021

Acorn Income Fund Limited

Proposed Change of Investment Objective, Policy and Manager

The Board of Acorn Income Fund Limited (the "Company") is pleased to confirm that it has concluded its previously announced strategic review and, having received strong interest from a number of high quality managers, is proposing to recommend the appointment of BMO Global Asset Management (“BMO”) to manage the Company, and the adoption of a new Investment Objective and Policy which the Board believes will position the Company for success in the years ahead and deliver long-term value for shareholders.

Using its Sustainable Global Equity Income investment strategy, BMO will manage the Company by investing principally in a global portfolio of publicly listed companies that offer an attractive level of income and make a positive impact on society and the environment.

The Board believes that the proposed change in investment manager and the adoption of the Sustainable Global Equity Income investment strategy are in the best interests of shareholders and will position the Company for a more sustainable, long-term future.

The strategy will seek a balance between growth and income by taking advantage of one of the most exciting and fastest growing investment opportunities in the market today: investing in companies that are expected to benefit commercially by proactively addressing long-term sustainability issues. Importantly, the proposals will also set the Company’s revenue and dividends on a more sustainable path.

These proposed changes in investment strategy will be set out in more detail in a circular to the Company’s shareholders and an extraordinary general meeting (the “EGM”) will be called at which shareholders will be able to vote on the proposals ahead of the five yearly discontinuation vote at the AGM in August. 

Nigel Ward, Chairman said: “The strategic review has been a lengthy and extensive process driven by the long-term interests of the Company’s shareholders. The Company has reached a natural juncture ahead of the discontinuation vote in August and the Board has concluded that maintaining the status quo will not remove the historical challenges of scale and liquidity it is facing.

“Against this backdrop, I am confident that the proposals the Board intends to recommend to shareholders at the EGM will lay the foundation for a successful long-term future by enabling the Company to benefit from a global investment mandate positioned to take advantage of the outstanding opportunities offered by sustainable investing.

“In putting forward the recommendations the Board’s view is that the choice for shareholders is clear and simple: a vote for the new investment Objective and Policy should be made in combination with a vote against discontinuation.

“BMO’s leadership in responsible investing and its investment trust track record stood out amongst a field of high-quality managers and is uniquely placed to take the Company on the next stage of its journey by delivering shareholder value through sustainable growth and income. I sincerely trust that shareholders will feel confident and enthused to support the Company not only at the forthcoming general meetings but also in the years to come.”


Benefits of the proposals

The Board believes that the proposed change of Investment Objective and Policy and manager is in the best interests of shareholders and will have the following benefits for shareholders;

  • Making a positive environmental and societal impact: The Company’s proposed investment strategy will target publicly listed companies globally, whose products and services contribute directly to addressing sustainability challenges such as climate change and ageing populations, and as a result make a positive impact on the environment and society. The Board believes this strategy is increasingly relevant to a very wide range of investors as well as providing the potential for strong long-term growth.
  • Attractive return profile: The strategy will offer an attractive risk/reward profile for the yield seeker with a balanced approach between growth and income.  The initial portfolio yield is expected to be circa 3.5%.
  • Aligns investment with values: The strategy will be ideal for individuals wanting to align their investments to their values, while still benefiting from an attractive level of income and potential for long term capital growth.
  • Reduced management fees and fixed costs: The management fee will fall from 0.7% on the gross assets of the Company to 0.65% on the net assets of the Company and the performance fee is removed entirely. Other operational cost savings are expected, including no additional fees associated with investment research or AIFM services. Furthermore, BMO’s management fee will be waived for the first six months of appointment.
  • BMO’s leading ESG and investment trust track record: BMO Global Asset Management is recognised as one of the original pioneers, and has one of the longest track records, in responsible investing. Combining this with its experience managing a range of investment trusts, across different geographic mandates and asset classes, sets it apart from its peers.
  • Engaging companies to improve is a key pillar of BMO’s sustainable philosophy: Investing sustainably is no longer about looking at Environmental, Social and Governance factors from the single prism of managing risks, and limiting the downside, but about also driving the upside. The sustainability risks and challenges the world faces ultimately underpin significant long-term growth opportunities for those companies addressing them.
  • Change of Investment Objective and Policy and Discontinuation vote: In the upcoming general meetings, shareholders will have the opportunity to vote on resolutions for the change of Investment Objective and Policy and for discontinuation of the Company. The Board intends to recommend shareholders vote in favour of the change of Investment Objective and Policy and against the Discontinuation Vote.

Background and Rationale

During Q4 2020, the Board initiated a strategic review of the Company with the intention of presenting proposals for shareholders to consider in light of the Discontinuation Vote at the upcoming Annual General Meeting in August 2021. The strategic review predominantly focussed on:

  • A fundamental review of the Company’s structure and investment mandate and its relevance to investors;
  • Stabilising and putting the Company’s revenue account and dividend policy on a sustainable long-term footing while maintaining an income focus in the investment objectives;
  • Setting the Company on a path to growth and hence improved liquidity and a lower expense ratio by broadening the appeal of the investment mandate to a wider range of investors; and
  • Operational cost savings through both management fee savings and other fixed cost savings.

The Board has concluded that the current arrangements will not deliver a product with wide appeal to investors and that maintaining the status quo will leave the Company facing the same problems of scale and liquidity that have challenged it in recent years. BMO’s proposed investment strategy recognises the new commercial opportunities arising from technological advances and the increased awareness of the need to adopt sustainable practices.  This provides the potential to generate attractive investment returns through both dividends and capital appreciation in the years ahead and in the Board’s view is more aligned to shareholders’ interests and much better meets the objectives of a broader range of investors. In addition, BMO has proposed a fee package and scope of service, described above, that answers the Board’s concerns in relation to operational costs. The Board believes that this strategy and the proposed fee structure will meet all of the objectives of its strategic review.

As material changes to the formal structure of the relationship with the Investment Advisers and Investment Manager were one possible outcome of the strategic review, as previously announced, the Company has served protective notice to terminate the existing Investment Management Agreement.

Change of Investment Objective and Policy

It is proposed that, subject to shareholder and regulatory approvals, the Company's investment objective be changed to achieve long term capital growth and an attractive and growing dividend yield by investing principally in a portfolio of publicly listed global companies that make a positive impact on society and the environment. The detailed investment policy will be set out in the circular following its approval by the FCA.

The proposed Global Sustainable Equity Income strategy aims to address a growing need in a clearly under-served area of the market, and will leverage the same philosophy and process of the award-winning teams within BMO behind the successful Responsible and Sustainable Development Goals Engagement strategies. The strategy will invest in a diversified global portfolio of 30 to 50 high quality, cash generative companies that are in complete alignment with the positive sustainability themes identified within the UN Sustainable Development Goals. The strategy will also aim to deliver an attractive level of income to shareholders. The initial portfolio yield is expected to be circa 3.5%.

Change of Investment Manager

The Company is proposing to appoint BMO as the Company's new Investment Manager and AIFM. The appointment of BMO is conditional upon the satisfaction of a number of conditions, including: (i) the Company’s Discontinuation Vote failing (i.e. the Company continuing) at the upcoming Annual General Meeting; (ii) the proposed Investment Objective and Policy being approved by shareholders at the upcoming Extraordinary General Meeting; (iii) the execution of a new investment management agreement; and (iv) obtaining the necessary regulatory clearances.

BMO is a diverse investment business with approximately £227bn[1] in assets under management and is recognised as one of the original pioneers of Responsible Investment, having launched Europe's first ethical fund over 35 years ago. Today the business manages approximately £8.3bn[2] in responsible funds and mandates and has a team of over 20 dedicated responsible investment experts, with over 275 years of combined experience.

The portfolio will be managed by Sacha El Khoury, with Nick Henderson as the named alternative. Both are members of BMO’s Responsible Global Equities team, with Sacha having joined BMO in 2009, and Nick in 2008.

Sacha El Khoury is a Portfolio Manager within the Global Equities team, Lead Portfolio Manager on the BMO Sustainable Opportunities European Equity Fund, and Alternate Portfolio Manager on the BMO Sustainable Opportunities Global Equity Fund. Sacha graduated with an MSc in Finance (with distinction) from City University, Cass Business School in 2009 and a BA in Economics (with a minor in Business Administration) from the American University of Beirut in 2007. Sacha is a CFA Charterholder.

Nick Henderson is a Portfolio Manager within the Global Equities team, Lead Portfolio Manager on the Sustainable Opportunities Global Equity Fund, winner of the 2019 Money Observer Best Global Growth Smaller Fund Award, Alternate Portfolio Manager of the BMO Responsible Global Equity Fund, the BMO SDG Engagement Global Equity Fund, and the BMO Sustainable Opportunities European Equity Fund. Prior to joining the firm, Nick graduated with a Bachelor of Science degree in Economics from the University of Bristol; he is a CFA Charterholder.


Dividend Policy

The Company’s current dividend policy is to provide Ordinary Shareholders with a high income relative to the average dividend yield of the UK Smaller Companies comprised in the Numis Smaller Companies Index ex Investment Companies, via quarterly dividends. The Board has already announced its intention to utilise revenue reserves to maintain the second quarterly dividend payments due to be paid in June 2021 at the same level as the corresponding quarterly dividends for the year ended 31 December 2020, but has noted that a return to a sustainable and covered dividend will necessitate a lower dividend payment in future years. Further details on the proposed level of future dividends and gearing under the new arrangements will be contained in the Shareholder Circular, which is expected to be published in July 2021.

Fees

The proposed change of Manager to BMO would result in a reduction in management fees from the current level of 0.7% on gross assets to 0.65% on the net assets of the Company. There would be no performance fee, nor additional fees associated with investment research or AIFM services. Furthermore, BMO’s management fee would be waived for the first six months of appointment.

Change of name

The Board proposes to change the name of the Company to BMO Global Sustainable Equity Income Fund Limited. The change of name is expected to become effective around the time of BMO's appointment. Shareholders will be asked to approve the proposed name change, which would also be conditional on the proposed investment objective and policy being approved by shareholders.

Expected Timing

The proposals are subject to shareholder and regulatory approvals. A circular with further details of the proposals, including a notice convening the Extraordinary and Annual General Meetings, both to be held in August 2021, is expected to be published in July 2021. The implementation of the new Investment Objective and Policy and management arrangements is expected following the Company’s AGM.

As part of the review process, the Board received a number of very high quality proposals and would like to express its thanks to all those who participated and to its advisers, N+1 Singer.

The Board would also like to thank its Investment Advisers and Investment Manager for their commitment and services, including Claire Long, Chun Lee and Robin Willis from Premier Asset Management and Simon Moon and Fraser Mackersie from Unicorn Asset Management.

For information please contact:

Nigel Ward – Chairman via N+1 Singer and FTI Consulting
N+1 Singer – Corporate Broker
Alan Ray    020 7436 3060
Alaina Wong  020 7436 3129
FTI Consulting – PR Adviser
Edward Berry    07703330199
Tom O’Brien  07929021492

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014. This announcement has been authorised for release by the Company's Board of Directors.

[1] as at 31 December 2020

[2] as at 31 December 2020


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