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Fund Profile

Baillie Gifford Shin Nippon 12 May 2021


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Baillie Gifford Shin Nippon. 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.

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Baillie Gifford Shin Nippon (BGS) is a small-cap Japanese equity strategy, giving investors access to rapidly growing companies. Lead by Praveen Kumar, BGS’s strategy is to take a highly active, long-term view to bottom-up investing. This involves identifying companies which are able to either disrupt incumbent industries or offer solutions to many of the problems facing Japan, with many of BGS’s investments being held for over a decade. While the investment process is flexible, as we outline in the Portfolio section, the team places the greatest weight on management quality and sales growth, with investments ideally returning at least 100% over five years.

The team’s strategy has clearly been successful, given BGS’s sector-leading performance. Over the last five years the strategy has generated returns that easily outperform both its benchmark and peers, as we detail in the Performance section. 2020 was also an exceptionally strong year for the trust thanks to the tailwinds from COVID-19, with six of its holdings generating returns of over 100% during the year.

While there have clearly been near-term headwinds for BGS thanks to the vaccine recovery-led rotation into value stocks, the trust’s portfolio is overwhelmingly driven by stock-specific risk, with Praveen commenting that his companies ‘live or die’ on the decisions of their management.

Perhaps thanks to its market-leading return, BGS’s shares have traded at a premium to NAV for the majority of the last five years, and the premium is currently 2.7%. BGS also has the lowest OCF in the sector, thanks to its tiered management fee structure and large market cap. Being a total-return-focussed strategy, BGS does not pay a dividend.

Analyst's View

Under the management of Praveen and the wider Japanese equity team, BGS has clearly been successful in delivering an attractive level of total return to its investors, especially when compared to its peers and benchmark. The small-cap space is in fact one of the best sectors for managers to add value, especially in Japan given the acute lack of analyst coverage. The team have taken full advantage of this, as shown by the high alpha generated over the last five years.

While investing in small-cap growth can enhance the risk investors face, we believe that the team’s dedication to identifying the most aggressively growing companies is justified. Thanks to the ample opportunities presented by the demographic and thematic issues facing Japan and the current lack of solutions, even small-cap companies can become market leaders, as has been made evident by some of BGS’s holdings.

We believe that BGS would be an excellent choice for any long-term investor looking to gain exposure to the domestic Japanese economy, or simply for those looking to add diversification to their growth allocation, thanks to the team’s successful approach to small-cap investing and the unique sectoral tailwinds underpinning BGS’s portfolio. A long holding period may be necessary for this strategy, given its enhanced volatility. However, investors with a more cautious risk profile may find BGS unpalatable due to its above-market volatility (although in the past this has been more than compensated for by its returns) and clear growth style bias.

Strong track record of successful stock-picking, and sector-leading performance
Strong stylistic bias could lead to underperformance of the market at times
Diversification potential as risk is primarily driven by stock-specific factors
Small-cap growth investing can increase volatility
Lowest OCF in the sector
Gearing can amplify losses on the downside
Continue to Portfolio

Fund History

22 Dec 2023 Discovering the unsung superstars of Japanese technology
Fast growing companies comprising Japan’s ‘third wave’ of industrial innovators have cornered key manufacturing markets. Praveen Kumar, manager of Baillie Gifford Shin Nippon, tells Joji Sakurai how they did it...
27 Sep 2023 Ohayō Japan!
Our analysts discuss what they think may be a new dawn for the Land of the Rising Sun...
21 Jul 2023 Shin Nippon: Japan’s hidden global champions
Discover the hidden gems in Japan’s small cap market. Praveen Kumar, manager of Baillie Gifford Shin Nippon, says there’s more to Japan than manufacturing...
09 Jun 2023 What is the long-term outlook for Japanese smaller companies?
In this update, Baillie Gifford Shin Nippon manager Praveen Kumar, shares the team’s views and provides an update on the performance over the past year...
21 Apr 2023 Fund Analysis
BGS is trading on a rarely available wide discount…
03 Mar 2023 Japan: the small businesses with big opportunities
Baillie Gifford Shin Nippon manager Praveen Kumar discovers the lesser-known businesses creating premium products in Japan...
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...
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 Fake news...
Small cap funds, despite their reputation to the contrary, are less volatile and have delivered better risk adjusted returns than their large cap peers...
19 Jan 2018 Full steam ahead?
Jupiter Fund of Investment Trusts manager Richard Curling gives his view on the potential risks and rewards for the major equity regions around the world in 2018...
27 Sep 2017 Not the usual suspects...
We highlight a selection of equity trusts that have managed to produce returns that are lowly correlated to global markets...
27 Sep 2017 Fund Analysis
A growth focused Japanese smaller companies trust with an outstanding track record relative to its benchmark and peers...
18 Sep 2017 Business as usual
We meet the new managers of Baillie Gifford's Scottish American Investment Company and find that they have much in common with former boss Dominic Neary...
22 Aug 2017 Japan briefing
We examine the opportunities and threats facing investors seeking exposure to Japan...
20 Jun 2017 Baillie Gifford Japan Trust
A consistent performer in positive and negative market cycles, led by a management team with long experience in Japanese equities...
26 Apr 2017 The greatest...
We use technical analysis to identify some of the best stock picking fund managers over the long-term...
19 Dec 2016 Small is beautiful…
We identify the UK's most efficient trusts, all of which have operational costs below 0.1%...
03 Jun 2016 Japan: Negative interest rates are just the beginning
Helicopter money could be among the measures policymakers use to revive Japan's struggling economy...
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