This London-listed Baillie Gifford Shin Nippon investment trust aims to achieve long-term capital growth by investing in a portfolio of small-cap Japanese companies which are believed to have above average prospects for growth.
The portfolio management team seeks to identify companies with innovative business models that demonstrate potential to disrupt traditional Japanese practices, market opportunities or offer growth from overseas. This morning, the company published interim results for the six months to 31 July 2019.
The Baillie Gifford Shin Nippon net asset value (NAV) increased by 15.3% over the period, outperforming the comparative MSCI Japan Small Cap Index which returned 8.1%. Returns were enhanced by weakness in sterling, which fell by 7.5% against the yen over the six-month period.
Payment services provider GMO Payment Gateway (2.8% of NAV), was the biggest contributor to positive performance, returning 41.8% as its core online payments processing business continues to grow rapidly. Positive performance was weighed down by cyclical companies with exposure to global demand, as investors retreated towards higher-yielding defensive stocks as a result of ongoing trade concerns.
The portfolio manager introduced two new holdings during the period: Kitanotatsujin, a fast growing specialist online cosmetics company and Tsugami, a specialist machine tool maker. The company also exited positions in biotech company SanBio as a result of disappointing clinical trials and Asics, which the portfolio management team believed was failing to respond to competition from rivals Adidas and Nike.
Earlier this year, the board received approval to invest up to 10% of the fund in unquoted shares. The Baillie Gifford Shin Nippon portfolio management team have added one unquoted company to the portfolio and are actively looking for opportunities in this space.
Gearing has remained fairly consistent at 10.0% from 10.5% at the start of the year.
“This is a strong set of results from the company, which offers exposure to major global trends like automation and the transition from cash transactions to digital real-time payments,” said UK wealth manager Killik in a note this morning. “The share prices of many high quality Japanese smaller companies have become increasingly disconnected from their long-term valuations, presenting exciting investment opportunities.”
The discount on Baillie Gifford Shin Nippon shares has narrowed to 0.9% from a 12-month low of 4.5%. Ongoing charges for the year to 10 September 2019 were 1.21% and the Key Information Document (KID) impact on return figure equates to 1.21%.
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