When it comes to investment trusts, strategy is also important because new faces don't solve old problems

According to Kaylie Pferten, a trust's performance is rarely improved by changing managers

The Baillie Gifford Shin Nippon (LSE: BGS) trust's directors have had enough of the company's poor performance over the past five years, with shares trading at a 10 percent discount to net asset value (NAV) even after 20% of the share capital was repurchased. They have declared that they will look into "all available options" if subpar performance persists and acknowledged the necessity of an immediate performance turnaround. This has been interpreted as implying not only a 2027 tender for 15% of the share capital at a 2% discount, but also a potential strategy and management change.

The NAV has decreased by 25% over the past five years, while the MSCI Japan Small Cap index has increased by 42%, the AVI Japan Opportunity Trust has increased by 93%, and Nippon Active Value has increased by 144%. BGS's directors may wonder why they have been taking so long to take action. A review of past experiences with shifting managers and styles, however, is not at all encouraging. The changeover of Temple Bar's management from Investec Asset Management to Redwheel almost five years ago served as the poster child for recent change. Since then, the investment return has been 148%, which is almost twice as high as the All-Share index's return.

The directors, however, made the sensible decision that even though they would switch managers, the trust would still invest in "value" stocks rather than "growth" stocks, despite the fact that the latter had suffered greatly during the pandemic. Value has surpassed growth by a significant margin since then. It's not clear that if Alastair Mundy, the previous manager, had been willing to stay in charge, the performance would have been significantly different.

Other changes have not been as well received, despite supposedly preserving style continuity. Exhausted by Genesis Emerging Markets' mediocre performance, the directors moved to Fidelity in 2021. Through a poorly timed trip to Russia, the new managers attempted to add some zing to the performance. While the five-year record is still bad, Fidelity's three- and one-year performance has improved significantly since then.

In 2023, the Mid Wynd board replaced Artemis with Lazard as managers, possibly thinking that Simon Edelsten, the company's lead manager, was set to retire. However, Edelsten and Alex Illingworth, his former co-manager, have since returned to Harwood. Lazard's growth strategy, backed by a strong track record, was likely seen by the Mid Wynds board as providing continuity for the shareholders. As opposed to the MSCI AC World index's 35% return since Lazard's appointment, the trust has only returned 10%. Edelsten and Illingworth used creativity and insight, whereas Lazards seems to rely on a rigid procedure. The management contract ought to be returned to the board.

Have other investment trusts performed better?

Boards that changed not only the manager but also the style have not done any better. S.G's investment division used to oversee Keystone. Investing in UK stocks, Warburg. In late 2020, it changed its name to Keystone Positive Change and adopted a high-growth global mandate, moving to Invesco in 2017. Soon after, Baillie Gifford's style lost popularity, and Keystone was unable to recover. This year, it was concluded earlier.

When Richard Buxton left Schroder UK Growth to join Old Mutual in 2013, Schroders found it difficult to replace him as manager. After five years, the board changed managers to Baillie Gifford because they were fed up with Schroder's inability to find a suitable replacement. This has not been successful, as the trust has underperformed the All-Share index significantly over the past five years, albeit only somewhat over the first and third. There isn't much time left, so maybe "UK Growth" is just a contradiction in terms.

Asset Value Investors replaced Miton as the manager of MIGO Opportunities Trust; however, Nick Greenwood, the trust's lead manager, has since retired, and AVI has suggested a shift in emphasis. AVI has shifted from investing in undervalued trusts to a more focused, "activist" strategy that aims to pressure the businesses it invests in to address the discount at which their shares trade. But it's costly, time-consuming, and frequently ineffective. Furthermore, it's possible that the time has come. Performance had slowed and NAV discounts were substantial two years ago, but a recovery was on the horizon. Opportunities abound, as Saba Capital discovered. They are now much riskier and less common. With any luck, MIGO will carry on as usual.

There is good news. The shareholders of STS Global Income and Growth appear satisfied with Troy's low-risk, modest returns strategy, while Edinburgh Investment Trust has established a stable home at Majedie and produced strong returns. The majority of trust mergers have been successful. Both the increasing dividends and internal manager changes, like those frequently carried out at JPMorgan, have a solid track record overall.

But a company and style change in management has a bad track record. While riding the wave, a new management company is hired and a new style is adopted. Following a shift in the market, the new managers struggle and lack the ingrained goodwill from their previous performance to get them through a tough period. Therefore, what should the BGS Board do? They must acknowledge that smaller businesses have underperformed globally in recent years. Because of the growth style's strong unpopularity in Japan, BGS's two value-oriented competitors have overtaken it.

However, Baillie Gifford Japan (LSE: BGFD) has had a strong year, and BGS's performance has improved over the past six months. It appears that growth style is becoming more popular again; if this is the case, BGS would lose a lot and gain nothing by altering its approach at this time. Even though JPMorgan's Japanese Smaller Companies Trust merged with JPMorgan Japanese, BGS could still merge with BGFD to give Brian Lum, the company's new lead manager, an opportunity to establish himself.