127. Exciting investment trends in Japan and the art of Nemawashi
Andy Brown and Thomas Patchett, investment specialists for Japanese equities and product specialists...
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
Founded in 1908 and employee-owned, Baillie Gifford is based in Edinburgh but has offices in London and New York. Awarded the Elite Provider for Equities Rating each year from 2015 to 2021, it specialises globally in equities, fixed income and multi-asset portfolios. The firm is owned by 44 of its senior executives and operates as a partnership.
Baillie Gifford Japan Trust has been managed by Matthew Brett since May 2018, with assistance from deputy manager Praveen Kumar and Baillie Gifford’s 11-person Japanese investment team. Each member is responsible for researching companies in particular sectors and generating new ideas. These sector responsibilities change regularly to ensure that perspectives remain fresh. Matthew is also lead manager on the group’s Elite Rated Japanese fund and has been at the company since 2003, while Praveen also leads Elite Rated Baillie Gifford Shin Nippon.
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.
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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The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund nor of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating. All performance data, as well as fund size, OCF, AMC, annual income (historic), share price discount or premium, is sourced directly from FE Analytics, and will change periodically.