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. 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. She also serves as director and audit chair at Celtic PLC, BMO Capital & Income Investment Trust LPC, and the European Opportunities Trust 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. The trust began paying a dividend in 2018.

ESG

ESG - Limited  

With this trust, Matthew takes a long-term approach, looking for growth opportunities with firms that are likely to be future leaders. He believes that this long-term approach incorporates a natural bias towards sustainable business models, however this is not a formal policy of the philosophy or process. Material ESG issues that are identified in the analysis will be considered as possible reasons to not invest, but this will be on a case-by-case basis, rather than a systematic approach. There is a strong focus on governance though, with Matthew and the team having regular engagement with the management of companies already held in the fund and those of prospective holdings.

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.

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