Baillie Gifford’s Shin Nippon trust had a terrible 2023. Can it fix its problems?

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James Carthew, head of investment companies at Quoteddata asked whether the share buyback suggestion was "too little, too late" for Shin Nippon.
James Carthew, head of investment companies at Quoteddata asked whether the share buyback suggestion was "too little, too late" for Shin Nippon.

After a year of abysmal performance, the board of Baillie Gifford’s Shin Nippon trust have pledged to commit to a major tender offer if its problem persists.

In the trust’s 2023 results today, the investment trust revealed that the trust’s share price had declined by 20.5 per cent, while net asset value declined by 14.9 per cent, compared to a benchmark rise of 6.3 per cent.

The company’s problem of long-term underperformance has been ongoing. Shin Nippon has seen a 30.9 per cent share price drop over the last five years, compared to a growth of 12.9 per cent across all Japanese small company investment trusts.

Therefore, the trust said today it would launch a programme to buy back 15 per cent of the trust’s shares for a high price if it continued to underperform its benchmark over the next three years.

This is not a new move for the trust: 4.4m shares had already been bought back throughout 2023, with 3.4m additional shares bought back so far in 2024.

James Carthew, head of investment companies at Quoteddata asked whether the move was “too little, too late”.

“After five years of underperformance, will shareholders be prepared to be patient for another three?” Carthew said.

Shin Nippon credited the poor performance over the last year to a range of problems, such as its focus on high-growth companies and sectoral underweights towards energy, industrials, financials and materials, which all performed strongly last year.

Another key problem for the trust has been its holdings’ unusually high exposure to China through companies like Shoei, Optex and Tsygami.

One particular problem for the trust was Katitas, a second-hand home renovation company, that detracted from performance following a tax-related fine

However, the trust tried to strike a more optimistic note, stating that there had been a “significant uptick in corporate activity in Japan, driven by activist investors and private equity groups”.

Jamie Skinner, chair of Shin Nippon, said the board had “rigorously challenged the portfolio manager” throughout the year, and noted that the number of retail investors in the trust had declined from 78.9 per cent to 68.7 per cent throughout the year.

To combat this, it had upped its annual market budget to £100,000.