Baillie Gifford Shin Nippon (BGS) is asking shareholders for permission to invest 10% of its top-performing Japanese smaller companies portfolio in unlisted stocks following its earlier investment in the Moneytree app.
In its full-year results, trust chairman Neil Donaldson said shareholders would be asked to vote on an additional resolution at the annual general meeting to ‘amend the investment policy to permit investment in unlisted companies at a level of up to 10% of the portfolio’.
This would increase the holdings in the £486 million portfolio from 75 to 80.
‘Although we currently have made only one investment in an unlisted company, the managers are seeing more unlisted opportunities and the board is of the view that this is an appropriate moment to provide clarity for shareholders on the maximum level such investments might reach,’ he said.
The trust took part in a $9 million funding round of the unquoted company. In doing so it followed in the footsteps of Baillie Gifford global flagship Scottish Mortgage Trust (SMT), Edinburgh Worldwide (EWI), its global smaller companies trust, and its US Growth Trust (USA) launched last year which have diversified into privately owned technology ‘unicorns’ in order to participate in their rapid growth before they reach public stock markets.
Although Kumar gave no indication of which unquoted stocks or sectors he was interested in, he said that changes in corporate Japan were resulting in investment opportunities.
‘Ongoing reforms in Japan are resulting in new business opportunities for smaller companies. Despite the current slowdown, we believe major global trends like automation and electrification of cars remain intact. There is ample scope for growth in these areas for Japanese small caps,’ he said.
‘Shin Nippon continues to focus on investing in dynamic and innovative smaller businesses and we are encouraged by the numerous investment opportunities emerging in various sectors.’
While the trust beat its MSCI Japan Small Cap benchmark in the year to 31 January, its net asset value still fell 6.1% compared to a 7.8% decline in the index. Kumar (pictured) said trade protectionism and a global cyclical slowdown meant ‘high growth stocks in Japan fell sharply as investors regarded them as being particularly vulnerable to external shocks’ such as in its auto sector.
In the fourth quarter of last year, Shin Nippon shares tumbled 21% although they have clawed back some of that with an 8% gain this year and continue to trade at a 5% premium over their net asset value. Its longer-term performance remains intact with a 1,090% total shareholder return in the past 10 years.
Online disruptors were top performers during the year, including Bengo4.com (6027.T) which operates a website that connects lawyers with those seeking legal advice. The poorest performers were Optex (6914.T), which manufactures industrial security and fault detection systems, and motion control technology specialist Nabtesco (6268.T).
Kumar has continued to invest, participating in the flotation of Raksul (4384.T), which has developed an online, cloud-based system connecting service providers with clients.
‘It is currently focusing on disrupting the domestic printing and logistics sectors, both of which are very inefficient, traditional, and quite large,’ said Kumar.
He also took stakes in mobile gaming company Akatsuki (3932.T) and specialist chemical manufacturer KH Neochem (4189.T).
The trust is also now invested in Uzabase (3966.T), a financial software company that is aiming to disrupt a market dominated by Bloomberg and Thomson Reuters with its own low-cost offering.
‘It has one of the largest databases of private companies in Asia and has already gained meaningful market share in Japan,’ said Kumar.
‘It also has a fast-growing business in the US where it provides a subscription-based financial news service. It is differentiating itself by offering a large selection of original content prepared by a panel of well-known industry experts.’