Baillie Gifford Japanese Smaller Companies

Baillie Gifford employs its renowned growth investment process on the exciting, but high-risk area of Japanese smaller company investing with this fund. The managers have a 'buy and hold' approach, and are willing to ride out short-term share price movements in order to take long-term benefits from the best growth prospects. They can invest in a broad range of sectors and look specifically for innovative names that have the potential to be future industry leaders. They can and will participate in initial public offerings (IPOs).

Our opinion

Japan is a high-risk market, and smaller companies especially so. That is why the experience and longevity of the team at Baillie Gifford, led by manager Praveen Kumar, is so useful. This fund stays true to the firm’s growth mantra and looks to find the outsized winners. If the fund maintains its past success rate, then it should deliver exceptional long-term returns.

Fund manager

Praveen Kumar took over this fund in December 2015 and has been a core member of Baillie Gifford’s highly regarded Japan equity team since 2011. The group’s thorough company research methodology is infused in his approach. Praveen has an MBA from the University of Cambridge and a Bachelor of Engineering in Computer Science from Bangalore University. He joined Baillie Gifford in 2008.

Paul Schwerda became co-manager of this fund in February 2023, having joined Baillie Gifford in 2018. Reflecting his long-standing fascination with Japan and his experience of living there, Paul is particularly interested in identifying those companies that will shape Japan’s economic future. Paul gained an AM in South Asian Studies from Harvard University in 2015 and an MA in Indian Studies from the University of Tübingen in 2011. He graduated PhD in South Asian Studies from Harvard University in 2017.

Praveen KumarFund manager

Investment process

The managers aim to identify smaller businesses that offer above-average growth prospects. They target companies with innovative business models and the potential to disrupt their industries; those that challenge traditional Japanese practices; as well as companies with strong overseas growth prospects. Sectors that are of particular interest include Japan’s emerging services industry, which is fast expanding due to government deregulation and corporate outsourcing, as well as technology and healthcare.

True to Ballie Gifford’s investment philosophy, the managers take a long-term view and do not rely on short-term valuations when they selects stocks. They invest with a time horizon of at least three to five years and are happy to hold stocks that may be classed as overvalued by other managers, as long as they meet the investment quality criteria.

Ideas are sourced from a wide variety of inputs, including from the team’s 500+ company meetings a year. These ideas are then debated with the wider investment team, using the experience and diversity of thought to develop a rounded view on the company. Within this, the team is asking four key questions about the company: What is the size of the opportunity? What problem is the company trying to solve? Is the management team aligned with the firm? And is management capable of delivering on the idea?

When ideas have been identified and validated, the managers will back them with conviction for the long term.

ESG

ESG - Limited  

With this fund, the managers take a long-term approach, looking for growth opportunities with firms that are likely to be future leaders. They believe 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, with the team having regular engagement with the management of companies already held in the fund and those of prospective holdings. This is especially important when considering the smaller size of many of the companies held.

Risk

The fund is very stylistic and invests in smaller companies meaning it will be at the top of the risk spectrum. The portfolio is independently monitored by an in-house investment risk team using quantitative tools. This team meets formally with the managers on a quarterly basis to discuss risk.

See more

Read more about this fund

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.