Baillie Gifford Shin Nippon

The team has an investment universe of around 2,000 companies to choose from. Idea generation is unconstrained - drawing insights from a wide network of sources - from management teams and academics to private company founders and unconventional thinkers. The team starts by adopting its five-point research framework (RADAR) for analysing both current and potential holdings.

These are:

Opportunity – What is the nature and size of the company’s addressable market over the next five to 10 years?
Edge – Can the company build a strong and sustainable competitive advantage?
Scalability – Where are the company’s financial characteristics as it grows and are there key growth bottlenecks?
Alignment – Are the management and stakeholders aligned with long-term success?
Sustainability – How do the company’s activities impact the broader society?

Each of these factors is analysed with every investment, creating a company score across these dimensions – this allows the managers to evaluate what success might look like and where their insights differ from the wider market.

Any additions are based on a combination of the research, open discussion among the team and conviction in the case. The final decision rests with the portfolio managers – the team will only buy when they believe there is a strong possibility of a company doubling its market-cap over five years and where the risk/reward is firmly in their favour.

Some of the other recent refinements of the investment process include widening the investment universe to include companies with a market-cap in excess of ¥150bn and giving the team greater flexibility to capture attractive growth opportunities as companies mature. Part of this has seen the introduction of four different growth buckets for companies.

These are:

Emerging Prospects – early-stage or loss-making businesses with significant upside but high uncertainty.
Rapid Scalers – companies with proven products and scalable models, growing rapidly into large addressable markets.
Cyclical Gainers – structurally growing industries with cyclical characteristics where strong operators can compound through downcycles.
Proven Winners – established leaders with durable advantages and long runways of compounding growth.

Praveen and the team play close attention to risk. For example, they reduce stock-specific risk by having a suitably diversified portfolio. Nevertheless, the trust is managed with little or no attention to the benchmark (MSCI Japan Small Cap Index). This is demonstrated by its active share. Holdings are limited to 5% of total assets at the time of purchase. If a position exceeds this size, it is monitored closely.

As with any small-cap portfolio, investors must be prepared for volatility. Likewise, small-caps can become difficult to trade during times of market stress or when growth-style investing falls out of favour. Currency fluctuation is another risk that investors need to consider.

The team takes a long-term approach, looking for growth opportunities with firms that are likely to be future leaders. The team believes that this long-term approach incorporates a natural bias towards sustainable business models, however this is not a formal policy of the philosophy or process. Material ESG issues that are identified in the analysis will be considered as possible reasons to not invest, but this will be on a case-by-case basis, rather than a systematic approach. There is a strong focus on governance though, with the team having regular engagement with the management of companies already held in the fund and those of prospective holdings. This is especially important when considering the smaller size of many of the companies held.

The board has stated that, although the trust could have maximum equity gearing of 50%, it would seek to limit equity gearing to 30% at the time of drawdown.

Baillie Gifford Shin Nippon has traded at an average discount of -8.9% to NAV over the past five years (figures to 3 September 2026). This has traded between discounts of 4% and -18.9% over this period.