Baillie Gifford Shin Nippon results: the ii analyst view

The trust, which focuses on high-growth smaller companies listed in Japan, has seen its performance come off the boil of late. 

Earlier this week Baillie Gifford Shin Nippon (LSE:BGS), a member of interactive investor’s Super 60 list, reported its annual results.

In the year to 31 January 2022, the company’s net asset value (NAV) declined 24.1% compared to a 4.3% decline in MSCI Japan Small Cap Index.

The share price decreased by 28.5% as the shares moved from a premium of 5.4% to a discount of 0.8%.

As a result of its recent performance it was announced in early March that the trust is exiting the FTSE 250 Index.

Chief executive Neil Donaldson said:

“Until the current reporting period, the Managers' stock picking approach, which aims to identify young, entrepreneurial and disruptive Japanese companies, had produced impressive results over several years. 2021 created a difficult backdrop for small cap growth investing in Japan.

"The favourable environment for disruptive small caps stalled last year. This was particularly pronounced due to their inherent characteristics: many are embryonic, operate in niche areas and have sparse investment analyst coverage.”

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Interactive investor round up:

Tracy Zhao, senior fund analyst, interactive investor, says: “Launched in 1985, Baillie Gifford Shin Nippon (LSE:BGS) aims to provide long term capital growth by investing in smaller companies listed in Japan. The name of ‘New Japan’ gives indication that emerging and disruptive sector is what the trust seeks.

“As of end of February, the trust had gained 39% over the past five years, which is 24.9% above its benchmark. However, in the past year, particularly in the last six months, it was hit hard by investors moving away from smaller cap and growth stocks, weighing on its three-year performance, which has posted a loss of 2.2%. This is 13.1% below the benchmark. Year-to-date, the trust has lost 22%."

Interactive investor view:

Zhao adds: “The trust has around two-thirds of its portfolio in three sectors: Industrial (27%), Information Technology (21%) and Consumer Discretionary (17%), as of the end of January. The Japanese economic recovery has been disappointing since the pandemic and, on top of sharp rising cost of goods and materials, the trust could expect another tough year ahead.

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“The trust issued new shares in 2021 at a premium to NAV on the back of higher demand from investors. In February, we saw the shares de-rate to a 6% discount. Unless the share price increases sharply above NAV during the coming year and market condition improves, it is less likely the trust will issue new shares in the next 12 months.

“ii welcome that the ongoing charge of the trust has been lowered to 0.66%, five basis points less than previous year.

“This investment trust remains on Super 60 despite the short-term setback, and the trust has provided a generous result of 570% total market return compared to 254% by its benchmark since 30 December 2000 to 28 February 2021.”