The £450 million Baillie Gifford Shin Nippon investment trust said the company’s net asset value per share declined by 5.1% and its share price by 5% in the year to January 31, 2025, while its comparative index — the MSCI Japan Small Cap Index — rose 8.9%.
The investment trust is managed by Praveen Kumar and it recently added Brian Lum as deputy portfolio manager.
The fund reported: “Over five years, the company’s comparative index was up 23.4% while the net asset value was down by 18.8% and the share price was down 29.7%.”
The fund’s share price ended the period at a 14.6% discount to the NAV per share. 30.3 million shares were bought back in the reporting period, equivalent to 9.8% of the issued share capital as at January 31, 2024, and are currently held in treasury. The fund is seeking shareholder approval “to cancel the share premium account to provide it with greater flexibility.”
The trust said: “Given the extent of the underperformance in recent years, and the negative impact that this has had on the share price discount, the board has accelerated the rate of share buybacks, engaged with shareholders and undertook a thorough performance review at its strategy meeting in November …
“The company’s investment policy has recently undergone a non-material change, 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. Also, a number of measures have been introduced to make the investment process more robust …
“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.
“Portfolio turnover for the financial year was 21.4%, with eleven positions exited and six new positions initiated.”
The fund’s chair Jamie Skinner wrote: “I am disappointed to report that performance for the Shin Nippon investment trust remains demonstratively poor despite the companies in which the trust is invested having grown their sales more than 6% per annum faster than the reference index over the last five years.
“Valuations rather than fundamental growth have had a far more significant impact on our overall returns …
“Much of the underperformance has occurred over the past three years when the company’s NAV total return was negative 20.2% against the comparative index total return of positive 22.3% …
“Given the extent of the underperformance in recent years, and the negative impact that this has had on the share price discount, the board has accelerated the rate of share buybacks, engaged with shareholders and undertook a thorough performance review at its strategy meeting in November …
“In the fourth quarter of 2024, my fellow director Claire Finn and I undertook a series of meetings with shareholders representing more than 30% of the shareholder register. Whilst frustrated at the performance, the vast majority of the shareholders we spoke to understand the company’s investment style and process and remain supportive.
“That said, following a thorough review at the strategy meeting in November 2024, the board and the managers have decided to appoint a deputy portfolio manager, to make a change to the investment policy and to introduce a number of measures to make the investment process more robust …
“I am pleased to report that Brian Lum has been appointed as deputy portfolio manager. Brian 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.
“Looking ahead, the managers expect to leverage the resource base in the International Smaller Companies team, which comprises six investors, to look at more Japanese smaller company ideas.
“Increasing resources that cover the portfolio is one of several measures the managers have implemented over the last year to make their investment process more robust.