How to pick an investment trust
The first investment company was launched some 150-odd years ago in 1868. From the very beginning,...
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. 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 0.78%, which is competitive relative to peers.
Trust manager
Baillie Gifford is the investment firm that is employed to manage the trust. Founded in 1908 and employee-owned, the firm is based in Edinburgh but also has offices in London, New York and Hong Kong. It has a partnership structure, which has enabled it to retain key people. The company has an excellent record of corporate stability, which has contributed to strong investment performance.
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 Japanese fund and has been at the company since 2003, while Praveen also leads Baillie Gifford Shin Nippon.
We like quality businesses that can show secular earnings growth over time.
Matthew BrettTrust manager
Investment board
The trust’s board comprises of six members and is chaired by Nick Bannerman, managing director of Johnstons of Elgin, Scotland’s largest textile company. The other board members are Paul Dimond, Keith Falconer, David Kidd, Martin Paling and Joanna Pitman. Between them, the board benefits from a variety of backgrounds, ranging from investment management (Keith Falconer, 24 years at Martin Currie Investments) to diplomacy (Paul Dimon, a senior independent director, with more than 16 years in Her Majesty’s Diplomatic Service). The board meets five times a year and the company’s year-end is 31 August.
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.
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. However, it currently stands at 13%*.
*October 2018
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