Baillie Gifford Shin Nippon has endured another tough financial year, as the Japanese small-cap investment company saw its share price fall by 8.9% in the 12 months to 31 January 2023.
The annual report, released this morning (22 March), conceded that the trust’s “unwavering” focus on high-growth smaller companies was out of sync with investor sentiment, adding that the recent underperformance in absolute and relative terms was “not unexpected”.
The trust considerably undershot the near 6% total return posted by its benchmark, the MSCI Japan Small Cap Index, across the 12 months, and the picture across the last three and five years is similar.
In the three years to 31 January, share price was down 6.8% in sterling terms, while the benchmark was up 6.6%, and the gap in performance is larger over five years.
The trust’s net asset value held up comparatively better, but still fell by 1.2% across the 12 months, growing by just 0.5% and 2.9% over three and five years respectively.
Total assets were £545m on 31 January, down from £553m at the same point a year, and the discount to net asset value per share opened to 8.6%, having been 0.8% a year earlier. Across the 12 months, the trust ranged between a 1.5% premium and 11.6% discount, averaging a 6.1% discount.
Chair Neil Donaldson voiced his disappointment about the relative underperformance, and said the board recognised that the valuation downgrade of growth companies did not always correlate with their operational performance.
Looking ahead, the board were more optimistic, arguing that growth stocks are now priced at levels that assume “barely any” future increase in revenues or profits, which it said lay in stark contrast to their underlying fundamentals.
The report added: “We remain committed to the managers’ unwavering focus on high-growth smaller companies and are confident that the company is well placed to benefit from the long-term prospects of the companies held in the portfolio.”
Since 31 January, the trust’s share price has slipped to £1.51, down 4.8% as of 22 March.