H1 2025: Small NAV gain, but still behind the benchmark
Baillie Gifford Shin Nippon (BGS) posted a 3.4% net asset value (NAV) total return over the six months to 31 July 2025. The share price did better at 8.2%, but the trust lagged its yardstick, the MSCI Japan Small Cap Index, which rose 7.9% in sterling terms.
NAV is the value of the underlying portfolio per share. Total return includes dividends reinvested. The gap to the index echoes a difficult run since 2021, and the Board is candid about its frustration with results so far.
Discount narrows as buybacks bite
Shin Nippon’s discount – the gap between the share price and NAV – narrowed to 10.8% at period end, from 14.6% at 31 January 2025. That improvement didn’t happen by accident. The trust bought back approximately 23.1 million shares into treasury over the half, equivalent to about 8.3% of the issued share capital as at 31 January 2025. Management estimates this added roughly 1% to NAV.
Buybacks can be a straightforward way to enhance value when a trust trades below NAV. They also send a message: the Board is willing to act while it waits for performance to recover.
New lead manager and a broader hunting ground
There’s a change at the top. Brian Lum has stepped up from deputy to lead portfolio manager, with Jared Anderson now deputy, following Baillie Gifford’s internal review. Importantly, this is not a style shift – BGS remains a growth-focused strategy.
The investable universe has been widened. The previous rule that new positions had to be in companies with market caps or turnover of not more than ¥150 billion has been removed. Initial investments can now be made in any company in the comparative index. Two new holdings benefited from this flexibility: DMG Mori and Money Forward. In total, five new positions were opened and seven were sold outright.
What moved the dial: winners and laggards
Top positive contributors were GA Technologies, Yonex and Cybozu, all delivering strong operational progress. Technopro also helped after becoming an M&A target.
On the flip side, Harmonic Drive Systems fell as the market cooled on humanoid-robot excitement, while Inforich and JEOL disappointed on results. The managers still see long-term attractions in these names, but the market has been unforgiving in the short term.
Gearing trimmed and balance sheet snapshot
Gearing – borrowing to invest – amplifies gains and losses. BGS reduced drawn borrowings by ¥1.3 billion during April’s volatility. Net gearing was 15.8% at period end (gross 20.3%). Total assets were £442.3 million before bank loans of £74.5 million, leaving shareholders’ funds at £367.8 million.
For income, a final dividend of 0.60p for the year to 31 January 2025 was paid on 29 May 2025. No interim dividend has been declared for the current period.
Tender offer trigger: what to watch
The performance-linked tender remains in place. If BGS underperforms the index on a NAV total return basis over the three years to 31 January 2027, up to 15% of the share capital will be offered for tender at a price equal to a 2% discount to cum-income NAV per share, less costs.
As at 31 July 2025, BGS trailed the index by 19.4% within that measurement period. The Chair is clear: if poor performance persists, a 15% tender may not be enough and all options will be considered. That’s a strong governance signal – and a line in the sand.
Process tweaks, on-the-ground research and AI themes
The managers say they’ve strengthened position sizing and risk discipline and are using new tools (including AI) in research. July’s research trip covered 49 companies, including 28 holdings, with founder-led ambition and AI adoption recurring themes. Examples cited include Gift (ramen chain), Litalico (disability support services) and Soracom (IoT connectivity).
Active share sits at 96%, meaning the portfolio looks very different to the index. That is what you want from an active growth trust, but it raises tracking-error risk – and potential for both sharp outperformance and underperformance.
Macro backdrop: potential tailwinds for Japanese small caps
The Board highlights improving conditions: US-Japan trade negotiations now seemingly concluded and agreed, inflation re-establishing, and expectations for further monetary policy normalising. Reduced uncertainty and a return of risk tolerance would be especially helpful for smaller growth companies. As ever, macro helps at the margin; stock selection will do the heavy lifting.
Longer-term record remains the hurdle
Context matters. Over three years to 31 July 2025, BGS’s NAV total return is (13.4%) and the share price total return is (17.5%), versus the index up 30.8%. The gap is large. The management change, wider remit and buybacks are constructive, but investors will want to see these translate into sustained relative performance.
Key numbers at a glance
| Period | Six months to 31 July 2025 |
| NAV total return | 3.4% |
| Share price total return | 8.2% |
| Index total return (MSCI Japan Small Cap) | 7.9% |
| NAV per share | 143.4p |
| Share price | 128.0p |
| Discount to NAV | 10.8% |
| Shareholders’ funds | £367.8 million |
| Total assets (before loans) | £442.3 million |
| Bank loans outstanding | £74.5 million |
| Net gearing | 15.8% |
| Shares bought back | c.23.1 million (c.8.3% of Jan 2025 share count) |
| Active share | 96% |
| Dividend paid | 0.60p (final, paid 29 May 2025) |
Portfolio changes worth noting
New positions
- Shinnihon (construction and real estate)
- Cover (vTuber agency)
- Mani (medical tools)
- DMG Mori (machine tools) – above ¥150 billion threshold
- Money Forward (back-office SaaS) – above ¥150 billion threshold
Complete exits
- Shima Seiki, Torex Semiconductor, InterAction, SIIX, Iriso
- Matsukiyo Cocokara and MonotaRO (both sold on valuation grounds)
What this means for investors
There are clear positives. The discount is narrower, buybacks are meaningful, a distributable reserve has been created via share premium cancellation, and the investable universe now fits today’s market reality. The new leadership team sounds focused and pragmatic.
The challenge is equally clear: relative performance must improve. The tender offer acts as a back-stop for accountability, but it is not a substitute for alpha. If you believe Japan’s governance reforms, a firmer yen, and a thaw in risk appetite can lift small-cap growth, BGS is a high-conviction way to play it. If you need near-term certainty, the trust’s high active share and gearing mean the ride can still be bumpy.
As always, do your own homework and keep an eye on monthly factsheets for ongoing progress. Up-to-date performance information is available at shinnippon.co.uk.
