Baillie Gifford Shin Nippon’s results for the 12 months ended 31 January 2025 make grim reading. The NAV fell by 5.0% and the share price by 5.1%. By contrast, the benchmark was up 8.9%. This extends a the trust’s run of underperformance and, over five years, leaves it trailing the benchmark by 42 percentage points in NAV terms and 53 percentage points in share price terms. The trust is one year into a three-year measurement period for a performance-triggered tender offer.
There is a dividend of 0.6p, down from 0.8p. The trust is not managed to produce income.
The board accelerated the rate of share buybacks, engaged with shareholders and undertook a thorough performance review at its strategy meeting in November. The rules around company’s permitted investments have been changed, removing the current restriction of less than JPY150bn market cap or sales at time of initial investment to one associated with the average market cap of the comparative index.
The company will invest primarily in companies that, at the time of initial investment, are constituents of the MSCI Japan Small Cap Index. It would typically expect to invest in ‘small’ companies that have market capitalisations at or below the average of the companies within the index. The comparative index currently comprises over 800 stocks in total and of these, over 500 stocks are currently at or below the average market cap, and these stocks currently make up approximately 30% of the index by value.
Brian Lum has been appointed deputy portfolio manager. He joined Baillie Gifford in 2006 and is now head of Baillie Gifford’s smaller companies team. Brian graduated with an MSci and BA (Hons) in Physics from the University of Cambridge in 2006. the managers will also tap into the resources of Baillie Gifford’s smaller companies team.
The discount at end January was 14.6%. 30.3m shares were bought back in the reporting period, equivalent to 9.8% of the issued share capital as at 31 January 2024, and are currently held in treasury. The intention is, subject to shareholder approval, to cancel the share premium account to give the company more room for further returns of capital.
The statement says that high growth small caps in Japan remained out of favour during the first half of the year, with sentiment improving during the second half. Electric power cable and wire manufacturer SWCC Corp was the top contributor to portfolio performance. Japan’s only pure-play online life insurer, Lifenet, was another strong performer as was leading global badminton brand Yonex. Litalico, Japan’s leading provider of training and employment services for disabled adults and day care services for children with development disabilities, was the largest negative contributor to portfolio performance. Online payment company GMO Financing Gate was another weak performer and two of the portfolio’s unlisted holdings, JEPLAN and Spiber, have been written down due to funding and capital concerns.
[The trust’s run of underperformance has gone on too long. If AVI Japan Opportunity does not win out in its approach to Fidelity Japan – or maybe even if it does – this is also a suitable target.]
BGS : Baillie Gifford Shin Nippon disappoints again, appoints new deputy manager
