Baillie Gifford Shin Nippon
Launched in 1985, the Baillie Gifford Shin Nippon trust aims to provide long-term capital growth by investing in smaller companies listed on the Japanese stock market. Shin Nippon means ‘new Japan’ and this trust focuses on emerging or disrupted sectors, where the manager sees innovative growth opportunities. The team are prepared to bide their time while these companies reach their full potential and, while the trust can be highly volatile, patient investors have been richly rewarded.
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Praveen Kumar, Lead Manager Praveen is an investment manager in the Japanese Equities Team at Baillie Gifford. He manages the Japanese Smaller Companies fund, related Japan Small Cap Strategy segregated accounts, and the Shin Nippon Investment Trust Plc, and is the deputy manager of the Japan Trust Plc. He is also a founder and member of the International Smaller Companies Portfolio Construction Group. Prior to joining Baillie Gifford in 2008, Praveen worked at FKI Logistex. He graduated with a BEng in Computer Science from Bangalore University in 2001 and completed an MBA at the University of Cambridge in 2008.
Praveen Kumar, Lead Manager Praveen is an investment manager in the Japanese Equities Team at Baillie Gifford. He manages the Japanese Smaller Companies fund, related Japan Small Cap Strategy segregated accounts, and the Shin Nippon Investment Trust Plc, and is the deputy manager of the Japan Trust Plc. He is also a founder and member of the International Smaller Companies Portfolio Construction Group. Prior to joining Baillie Gifford in 2008, Praveen worked at FKI Logistex. He graduated with a BEng in Computer Science from Bangalore University in 2001 and completed an MBA at the University of Cambridge in 2008.
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Talking Factsheet
Quote from the Fund Manager
We invest in high quality, disruptive and rapid growth businesses that are targeting large-end markets and run by young and dynamic entrepreneurs.
Praveen Kumar
Lead Manager
Investment process
Praveen aims to identify smaller businesses that offer above-average growth prospects. He targets companies with innovative business models and the potential to disrupt their industries; those that challenge traditional Japanese practices; as well as companies with strong overseas growth prospects. Sectors which have historically been of interest to the team include Japan’s emerging services industry, which is fast expanding due to government deregulation and corporate outsourcing, as well as technology and healthcare.
As mentioned, the target is for companies to at least double in value over the next five years. Praveen will hold companies that are unprofitable if he feels the sales growth and profitability runway is there in the future. Praveen has worked hard to widen the scope of the portfolio by increasing the focus on sectors where it has traditionally been hard to find growth, such as utilities and food services.
The five-year time horizon means that Praveen does not rely on short-term valuations. He is happy to hold some stocks that may be classed as overvalued by other managers, as long as they meet his investment quality criteria.
Risk
Investing in Japan always carries high risk, which can be accentuated in this trust as it tends to invest mainly in smaller-sized companies that are traditionally more volatile than larger companies. However, Praveen manages this risk by ensuring he holds a minimum of 40 stocks (normally between 40 and 70), as well as making sure he thoroughly researches and understands the businesses in which he invests. Currency fluctuation is another risk that investors need to consider. Gearing can also increase the trust’s volatility.
ESG
ESG - Limited
Praveen takes a long-term approach, looking for growth opportunities with firms that are likely to be future leaders. He believes that this long-term approach incorporates a natural bias towards sustainable business models, however this is not a formal policy of the philosophy or process. Material ESG issues that are identified in the analysis will be considered as possible reasons to not invest, but this will be on a case-by-case basis, rather than a systematic approach. There is a strong focus on governance though, with Praveen and the team having regular engagement with the management of companies already held in the fund and those of prospective holdings. This is especially important when considering the smaller size of many of the companies held.
Gearing
The investment team can use gearing as and when they feel it is appropriate. The intention is to enhance returns over the long term. As leverage can potentially increase volatility, the board monitors gearing levels closely to ensure they remain appropriate.
At 17.9% (1 January 2025), the trust is almost fully geared (it can go up to 20% of the trust) – taking advantage of the number of opportunities and the low cost of debt in Japan.
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