Fund Profile

Disclaimer

This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
BGS has the best long-term track record in the Japanese sectors…
Overview

Baillie Gifford Shin Nippon (BGS) is an unashamedly high growth strategy, with manager Praveen Kumar aiming to identify those small Japanese companies which have exceptional growth potential and can grow an initial investment many times over the course of multiple market cycles. Performance has been outstanding over the long run, the trust more than doubling the returns of its nearest peer over the past decade. This has been boosted by some exceptional returns in single stocks; the portfolio’s top performers over the past decade have returned two or three thousand per cent, and the majority of the best performers remain in the portfolio as Praveen thinks the returns potential is still exceptional.

This outperformance has come at the expense of volatility. The portfolio is tilted to the smallest companies, often less liquid and driven by sentiment, and tends to be run with gearing, all of which raise the market price risk. The strong exposure to the growth factor is another risk to bear in mind and has contributed to a sharp sell-off in the trust’s NAV and share price over the past year.

Praveen remains focused on the operational performance of his holdings and reports this has remained strong over the period, with the sell-off attributable to sentiment and external factors. He has, therefore, not made major changes, believing the majority of his portfolio is looking as promising as it was pre-pandemic, if not more so (see Portfolio). BGS has usually traded on a premium over the past five years but has fallen onto a small Discount during the sell-off of the past year.

Kepler View

Praveen’s approach is to be patient and long-term, and this has paid off in a big way in the past. We think investors will need to demonstrate the same qualities to benefit from this strategy. The volatility we have seen over the past year is extreme – a 30% sell-off in 12 months – but the trust has always tended to be more volatile, and a portfolio with such an active set of exposures should be expected to underperform at times. Over the long run, if Praveen has picked the right stocks, then their earnings growth should be more significant to long-term returns than valuation multiples, although there is potential for further downside on the way and no guarantee the amount of outperformance in the future will be the same as seen in the past.

We think BGS has exciting growth potential for investors who can stomach the risk, offering exposure to some areas in which Japan excels – high-end manufacturing – as well as to global trends to digitalisation and increased healthcare spending. The portfolio is cheaper than it was in the past, and BGS’ own share price rating is lower, which should increase future return potential. That said, the current economic environment looks less favourable to growth stocks than it did a few years ago, so there may be more volatility in the short term.

Bull

  • Excellent track record of adding alpha
  • Highly active and long-term in approach which increases alpha-generating potential
  • Has the lowest charges in the sector

Bear

  • Tends to be very volatile, with gearing contributing
  • Growth factor is out of favour and this could weigh on the trust in the near future
  • The Japanese market can be very sensitive to a global recession
Continue to Portfolio
2022 Kepler Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for growth... Find out more

Fund History

20 Jul 2022 Ingredients for success
We identify several less conventional trusts that offer strong sources of diversification to major indices…
20 May 2022 Baillie Gifford Shin Nippon Investment Trust: Manager Update
Praveen Kumar, investment manager of Baillie Gifford Shin Nippon PLC gives an update on the performance of Shin Nippon over the past year and shares the team’s views on the long-term outlook for Japanese smaller companies...
05 Apr 2022 Fund Analysis
BGS has the best long-term track record in the Japanese sectors…
10 Nov 2021 Fantastic growth funds (and where to find them)
We found them in India, Japan, frontier markets, healthcare and the global sector – and here they are…
10 Nov 2021 Slides and Audio: Baillie Gifford Shin Nippon
Download the presentation and listen to the audio from our 'Fantastic growth funds (and where to find them)' conference on 4 November...
14 May 2021 Baillie Gifford Shin Nippon – Manager Insights
Praveen Kumar, investment manager of Baillie Gifford Shin Nippon PLC gives an update on the performance of Shin Nippon over the past year and shares the team’s views on the long-term outlook for Japanese smaller companies. Capital at risk.
12 May 2021 Fund Analysis
BGS offers a portfolio of Japan’s fastest-growing and most disruptive companies and has generated sector-leading performance…
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
02 Dec 2020 Can you teach an old dog new tricks?
Cheap companies in Japan are drowning in what cheap companies elsewhere would kill for: buckets of cash…
02 Dec 2020 Japan's Great Wave of Change
In Japan, crisis often sparks accelerated change and innovation. Praveen Kumar, manager of Baillie Gifford Shin Nippon, talks about the upstarts making inroads...
10 Mar 2020 Kepler Spring Conference: presentations and audio
Audio and presentations from our spring conference at The May Fair Hotel last week…
12 Dec 2019 Japan's cutting edge
The qualities that give the best companies their advantage are not always obvious. Praveen Kumar, manager of the Baillie Gifford Shin Nippon investment trust and deputy manager of the Baillie Gifford Japan Trust, outlines the ingredients of lasting success...
22 May 2019 On a roll
As Western economies show signs of their own 'Japanification', we explore the Japanese industries poised to take advantage of this change...
07 May 2019 Fund Analysis
This ultra-active Japanese smaller companies fund, already the cheapest in its sector, reduced its fee last year...
12 Sep 2018 High flyers
Our research shows small-cap managers adding consistently more alpha, and regulatory change means this could be an attractive time to invest in the sector...
27 Sep 2017 Not the usual suspects...
As equity valuations continue to defy logic, we identify the trusts least correlated to their fortunes...
26 Sep 2017 Fund Analysis
Superior yet uncorrelatd returns
26 Apr 2017 The greatest
We use technical analysis to identify some of the best stock picking fund managers in the world today...
26 Apr 2017 Fund Analysis
19 Apr 2016 The ultimate arena for stockpicking
Our analysis of 285 open and closed end smaller companies funds highlights the best active managers in the field...
View all

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