Launched in 1985, the Baillie Gifford Shin Nippon trust aims to provide long-term capital growth by investing in smaller companies listed on the Japanese stock market. Shin Nippon means ‘new Japan’ and this trust focuses on emerging or disrupted sectors, where the manager sees innovative growth opportunities. The team are prepared to bide their time while these companies reach their full potential and, while the trust can be highly volatile, patient investors have been richly rewarded.
Our opinion
The quality of Baillie Gifford’s in-house research and its specialist Japan equity team are two factors hugely in this trust’s favour. The team delve into the small-cap area of the market where many other firms fear to tread, giving them ample opportunity to uncover hidden gems. The Baillie Gifford Shin Nippon trust is best suited to investors who are interested in the growth potential that Japanese smaller companies can provide, but who understand and are prepared to withstand the additional risk inherent in these types of stocks.
Trust manager
Founded in 1908 and employee-owned, Baillie Gifford is based in Edinburgh but has offices in London and New York. Awarded the Elite Provider for Equities Rating each year from 2015 to 2021, it specialises globally in equities, fixed income and multi-asset portfolios. The firm is owned by 44 of its senior executives and operates as a partnership.
Praveen Kumar took over on this trust in December 2015 and has been a core member of Baillie Gifford’s highly regarded Japan equity team since 2011. The group’s thorough company research methodology is infused in his approach. Praveen has an MBA from the University of Cambridge and a Bachelor of Engineering in Computer Science from Bangalore University. He joined Baillie Gifford in 2008.
We invest in high quality, disruptive and rapid growth businesses that are targeting large-end markets and run by young and dynamic entrepreneurs.
Praveen KumarTrust manager
Investment board
The trust’s board comprises of six members and is chaired by Jamie Skinner, who was previously a director of the trust. The other members are Professor Sethu Vijayakumar, Kevin Troup, Claire Finn and Abigail Rotheroe. Neil Donaldson stepped down as chairman at the 2023 AGM, having served as chairman since 2015.
Jamie is a qualified accountant and a fellow of the Chartered Institute for Securities and Investment. He has over 30 years of experience in the finance industry.
Investment process
Praveen aims to identify smaller companies that he believes offer above-average growth prospects. He targets firms with innovative business models and the potential to disrupt their industries; those that challenge traditional Japanese practices; and those with strong overseas growth prospects. Sectors that are of particular interest to the team include Japan's emerging services industry, which is fast expanding due to government deregulation and corporate outsourcing, as well as technology and healthcare.
Praveen has a three- to five-year time horizon when selecting companies and does not rely on short-term valuations. He is happy to hold some stocks that may be classed as overvalued by other managers, as long as they meet his investment quality criteria.
ESG
ESG - Limited
Praveen takes a long-term approach, looking for growth opportunities with firms that are likely to be future leaders. He 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 Praveen and 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.
Risk
Investing in Japan always carries high risk, which can be accentuated in this trust as it tends to invest mainly in smaller-sized companies that are traditionally more volatile than larger companies. However, Praveen manages this risk by ensuring he holds a minimum of 40 stocks (normally between 40 and 75), as well as making sure he thoroughly researches and understands the businesses in which he invests. Currency fluctuation is another risk that investors need to consider. Gearing can also increase the trust’s volatility.
Gearing
The investment team can use gearing as and when they feel it is appropriate. The intention is to enhance returns over the long term. As leverage can potentially increase volatility, the board monitors gearing levels closely to ensure they remain appropriate.
Share price discount/premium
Like any investment trust, Shin Nippon can move in and out of favour with investors depending on market conditions and sentiment. As a result, the trust’s share price has the potential to trade in a wide band compared to its net asset value. Over the past five years, there have been points when the trust has traded at a discount of 17% and a premium as high as 14.5% (figures at 13 September 2022). The board is alert to this and has used a special resolution to buy-back up to 15 per cent of its own shares in 2022.
The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund nor of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating. All performance data, as well as fund size, OCF, AMC, annual income (historic), share price discount or premium, is sourced directly from FE Analytics, and will change periodically.