The £480 million Baillie Gifford Shin Nippon plc investment trust said its net asset value per share increased 5.4% and its share price rose 14.4% in the year to January 31, 2026, compared to a 21.5% increase for its comparative index — the MSCI Japan Small Cap Index.
Over five years, the index was up 42.4% while Baillie Gifford Shin Nippon’s net asset value per share was down 36.1% and its share price was down 43.8%.
The fund’s chair Jamie Skinner wrote: “Despite achieving positive absolute returns, I am sorry to report that over the twelve months to 31 January 2026, the company’s poor relative performance has continued …
“Investing for capital growth from Japanese smaller companies has continued to be challenging. The portfolio’s focus on high-growth, domestically-oriented small caps has been out of favour as value stocks, large exporters and AI-related mega-caps have dominated returns in Japan.
“Rising interest rates, a weak yen and significant valuation de-rating across small-cap growth stocks in Japan have further weighed on performance, despite many holdings continuing to grow earnings strongly.
“Mistakes have certainly been made. Following challenge from the board, and open constructive dialogue with the managers, lessons have been learnt.
“Past portfolio construction underestimated correlations between certain growth holdings, exacerbating the impact of market-wide de-rating and a shrinking opportunity set at the point of initial investment …
“While the recent period has further tested patience, the Board continues to believe the portfolio is invested in one of the most overlooked areas of global equity markets, with valuations at near decade lows and long-term growth opportunities intact.”
Skinner added: “In May 2025, Brian Lum was promoted from deputy portfolio manager to lead portfolio manager, replacing Praveen Kumar. Jared Anderson was also appointed deputy portfolio manager.
“While remaining committed to their long-term investment approach, Brian and Jared have made a number of changes to the portfolio since their appointment. These changes reflect their views of the best Japanese small cap growth companies and take advantage of the changes to the company’s investment policy announced in 2025, which broadened the investable universe to reflect the opportunity set.
“Since then, there have been five positions initiated in companies with market capitalisation in excess of ¥150 billion (the upper restriction prior to the changes to the investment policy) and eleven complete exits, including Moneytree, which was an unquoted holding. In addition, there have been significant changes to the size of a number of existing holdings with position sizing forming an important element of the portfolio review.”
The fund’s managers Brian Lum and Jared Anderson wrote: “While it gives us some comfort to see Shin Nippon deliver its first positive annual NAV (and share price) returns for 5 years, we are nevertheless acutely aware of the scale of our underperformance relative to the MSCI Japan Small Cap index in the past 12 months, a period during which the portfolio continued to face heavy stylistic headwinds …
“There are several broad directions to highlight. Firstly, we have taken advantage of our new ability to invest in companies with market capitalisation of above ¥150b.
“New buys Seiko Group (the watch company, a ‘Proven Winner’), JMDC (a healthcare big data company, a ‘Rapid Scaler’), Kasumigaseki Capital (a real estate company with an unusual asset light business model, also a ‘Rapid Scaler’), DMG Mori (a leading high precision machine tools company, a ‘Cyclical Gainer’), and Money Forward (a cloud-based software company that automates back office workflow such as accounting, another ‘Rapid Scaler’) are all such examples.
“We have long admired some of these names and believe these are all exciting investment cases individually. At a portfolio level, historically we have displayed a significant bias towards the small end of the comparative index. While we expect this stylistic tilt to remain given our growth style, these latest additions have incrementally narrowed our difference to the benchmark …
“In the short term, we are mindful of the crisis in the Middle East. Japan’s economy is particularly vulnerable given its reliance on energy imports, and a prolonged conflict raises the prospect of stagflation in Japan. Despite the troubling headlines, we believe that our portfolio is relatively resilient given our bias towards fast moving domestically orientated companies. We will monitor the situation closely and adjust the portfolio accordingly.”