Baillie Gifford Japan

Investment trust

Launched in January 1981, the Baillie Gifford Japan Trust aims to provide capital growth by investing primarily in Japanese small and medium-sized companies, which offer exceptional growth opportunities with sustainable business models. It is run by the same team behind the Elite Rated Baillie Gifford Japanese fund, whose track record is among the best in the business.

Our opinion

This is a well-managed trust with a clear investment process. It is run by an experienced team, headed by Matthew Brett, with Praveen Kumar as deputy manager. Although the portfolio principally invests in small and medium-sized companies, which are typically more volatile than the Japanese stock market as a whole, the team’s disciplined approach has provided shareholders with excellent long-term returns. We see no reason as to why this enviable track record cannot continue. The trust is also reasonably priced with an ongoing charge of around 0.70%, which is competitive relative to peers.

Trust manager

We like quality businesses that can show secular earnings growth over time.

Matthew BrettTrust manager

Investment board

Kevin Falconer is chairman of the five-strong board, having replaced Nick Bannerman at the end of 2019. Kevin joined as a director in 2014 and became chairman of the Audit Committee later that year. Keith worked at Martin Currie Investment Management from 1979 to 2003 and headed up the Japanese team at the asset manager between 1982 and 1987. Sharon Brown, who was appointed to the Board in October 2019 as a Non-Executive director, has taken on the role of chairman of the Audit Committee. Sharon is also the audit committee chair of Fidelity Special Values PLC. She also serves as director and audit chair at Celtic PLC, BMO Capital & Income Investment Trust LPC, and McColl's Retail Group PLC. Directors Joanna Pitman, Martin Paling and David Kidd complete the existing board.

Investment process

The Baillie Gifford Japan Trust and Baillie Gifford Japanese fund have a similar investment process. The investment team, headed by Matthew, seeks to identify well-managed businesses with a strong competitive advantage, which are not overpriced. The research process is designed to ensure that the best ideas from each individual team member are included in the portfolio, rather than a ‘lowest common denominator’ approach, which can result from team-based investment. The trust will typically consist of 40-70 stocks with a focus on smaller and medium-sized companies, which are believed to have above average prospects for growth.

Risk

As this trust invests mainly in small and medium-sized companies, the portfolio can experience some volatility. Currency fluctuation is another risk that investors need to be aware of. Investors comparing the Baillie Gifford Japanese fund and the Baillie Gifford Japan Trust should note that the trust has tended to be more volatile than the open-ended fund over the long term. This is down to the gearing that is employed. However, this has also enhanced the trust’s total returns over the long-term.

Gearing

The trust’s gearing is closely monitored by the board to ensure it is appropriate and has the potential to generate additional value for shareholders over the long-term. The maximum gearing limit is 30% of shareholders’ funds. As at 31 August 2019 - the end of the trust's last financial year - gearing stood at 12%.

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