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Baillie Gifford Shin Nippon - harnessing disruption

Baillie Gifford Shin Nippon – harnessing disruption Dominic Rowles, Investment Analyst, reports on Baillie Gifford Shin Nippon's annual results for the year to 31 January 2019.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • NAV fell 6.1% compared with a 7.8% fall for the trust’s benchmark
  • Share price fell 7.2% 
  • The trust's longer-term track record is more positive
  • Trends like automation and electrification of cars could yield opportunities for smaller companies

Smaller companies are some of the most exciting around. They can be pioneers of industry, and adapt quickly to take advantage of new opportunities. But they often go overlooked by investors who don’t have the time or resources to research them.

Praveen Kumar, manager of the Baillie Gifford Shin Nippon Trust, scours the Japanese stock market for high-quality smaller companies with strong senior management teams and outstanding growth prospects. You should remember that smaller companies are higher-risk than larger ones though.

He's managed the trust since December 2015 and it's done well under his tenure. An investment of £10,000 when he started managing the trust would be worth £20,439*. Past performance shouldn’t be seen as a guide to the future though.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
Baillie Gifford Shin Nippon Trust 3.9% 39.2% 34.9% 55.5% -8.6%

Past performance is not a guide to the future.Source: *Lipper IM to 28/02/2019

The trust’s use of derivatives and high level of gearing (borrowing to invest) mean performance can be volatile. Please see the latest annual report & accounts and Key Information Document for details of the risks and charging structure.

The disruptive potential of smaller companies

Smaller companies often provide innovative products and services which enable them to poach customers from large, slow-moving businesses.

Bengo4.com is a great example. It runs a website that connects lawyers with people and businesses in need of legal advice. About a third of Japan's lawyers are now registered members. It's also leading the way in cloud-based contracts that can be securely signed. The company was the trust's best-performing investment over the year.

Uzabase is a more recent investment. It's a financial software company that's trying to disrupt a market dominated by Bloomberg and Thompson Reuters through its own low-cost service. It's got a huge database of private companies in Asia and is quickly winning business from its competitors in Japan. Its original content written by a panel of industry experts differentiates it from competitors.

Not all smaller companies will be successful though and many will fail altogether. It's one of the things that makes them higher-risk. High-end rice cooker maker Zojirushi was sold from the trust amid concerns it was struggling to cope with increasing competition.

Manager's outlook

Concerns are emerging about the health of the global economy. But Praveen Kumar won't be distracted from his investment process. He thinks the prospects of the companies he invests in are more tied to their ability to disrupt competitors than the global economy.

He believes trends like automation and the electrification of cars could provide opportunities for smaller companies in the future. There's also a drive to improve corporate governance across Japan. This helps put investors' interests at the forefront of corporate decision-making.

Key Information Document

More on this trust, including charges

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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