Fund Profile

Disclaimer

This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
BGFD’s largest holdings are returning to form…
Overview

Baillie Gifford Japan (BGFD) is seeing its largest positions perform well as the Japanese market environment seems to be shifting back in its favour. BGFD is a long-term strong performer which has had a weak period of performance as the developed world struggled with inflation after the pandemic and interest rates rocketed higher. Over the last 12 months performance has been positive, and marginally ahead of the index, and both SoftBank and Rakuten, which together make up over 11% of the portfolio, have performed particularly well (see Portfolio).

BGFD is managed by Matthew Brett who aims to identify the best long-term growth opportunities in Japan, looking to find companies he believes can return at least 100% over five years. Turnover is low as Matthew invests for the long term, but in recent months he has been finding a number of new opportunities in secular, ‘Warren Buffet’ growth stories which have fallen onto highly attractive valuations amidst a period in which growth investing has been out of favour.

Matthew’s conviction is demonstrated by the significant Gearing level he has been running for some time, and this stood at 15% on a net basis as of the end of September. In his view, the economic environment in Japan is likely to remain conducive to growth investing over the long run, with inflation and interest rates low and demographics forcing the country to generate productivity advancements to grow. While a lot of attention has been on the corporate governance story over the past two years, Matthew argues that this often leads to one-off or short-term boosts to company performance, and the more attractive stocks are those that can compound earnings growth over the long run thanks to innovation.

BGFD’s shares trade on a wide Discount to NAV of 10.8% at the time of writing.

Kepler View

A number of environmental factors seem to be turning in BGFD’s favour. Japanese inflation has come down over the past year, meaning that rising rates in the country seem less likely, while rates in other developed markets are falling. The global GDP outlook has slowed, meaning that company-level earnings growth is arguably more attractive, while technology has reemerged as the main driver of productivity growth and innovation in stock markets. However, we think the most encouraging developments over the past year are at the stock level, with some of BGFD’s largest and longest-held positions performing well operationally and in share price terms, having weighed on performance in 2022 and early 2023. Given how active BGFD is versus the index, and that it is relatively concentrated at the top of the portfolio, single stock factors are important to the outlook. In that light, SoftBank’s return to form and heavy investment in the AI industry is particularly promising.

We think there are clear signs that a period of poor performance is over, and the trust has the potential to perform very well again in the future, while the shares trade on a wide discount. That said, BGFD is clearly a risky proposition due to its strong style bias, active nature, and significant gearing, and we think investors should consider these risks carefully.

Bull

  • Strong long-term track record
  • Highly active approach which brings outperformance potential
  • Low OCF relative to peers

Bear

  • Active share increases underperformance potential as well as outperformance
  • Gearing can amplify losses on the downside and volatility
  • Economic conditions could lead to the growth style remaining out of favour
Continue to Portfolio

Fund History

20 Nov 2024 Fund Analysis
BGFD’s largest holdings are returning to form…
18 Oct 2024 The Japanese changemakers shaping the future
From robots to skincare, cashless payments to Alzheimer’s drugs - discover the Japanese companies backed by Baillie Gifford that have harnessed four forces transforming society...
19 Jul 2024 Japan’s online banking revolution
In a country where cash has long been king, fintech innovators are at last shaking up old habits. Matthew Brett, manager of The Baillie Gifford Japan Trust, tells Joji Sakurai about three disrupters loosening the grip of the country’s traditional megabanks...
05 Jul 2024 Baillie Gifford Japan Trust: webinar 2024
Uncover the future of Japan's economy and stock market through Baillie Gifford Japan Trust's expert analysis. Matthew Brett explores analysis of Japan's economic resurgence and market highs...
12 Jan 2024 Baillie Gifford Japan Trust: Manager Insights
Investment manager Matthew Brett discusses performance and why developments such as rising entrepreneurialism and progress in AI make for compelling growth opportunities in Japan...
12 Jan 2024 Fund Analysis
Matthew Brett: Growth stocks are available at value stock multiples in Japan…
15 Feb 2023 Lost in translation
We argue Japanese equities look attractive on both a short and long-term view…
10 Feb 2023 Permanent change versus temporary setback – A Japanese perspective
In this webinar recording Matthew Brett, the Baillie Gifford Japan Trust manager, looks back at examples of change and setbacks over the last 15 years of investing in Japan; and forward to consider the positioning of the trust for the future.
16 Dec 2022 Baillie Gifford Japan Trust: Manager Insights
Matthew Brett, manager of the Baillie Gifford Japan Trust discusses performance and returns for 2022...
16 Nov 2022 Fund Analysis
Matt Brett is excited by the opportunity in Japan after recent market falls and has geared up BGFD significantly…
21 Oct 2022 Baillie Gifford Japan Trust Webinar
In this recent webinar, Matthew Brett, the Baillie Gifford Japan Trust Manager, outlines how the trust aims to capitalise on the country’s unique growth opportunities...
25 Mar 2022 Slides and Audio: Baillie Gifford Japan
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 16 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
23 Feb 2022 Regime change
Ahead of our spring conference, we ask whether investors need to junk their portfolios and start again…
22 Dec 2021 Fund Analysis
BGFD remains relentlessly focussed on long-term growth opportunities…
17 Dec 2021 Baillie Gifford Japan Trust - Manager Insights
Lead manager of The Baillie Gifford Japan Trust, Matthew Brett, talks about the past year, the current positioning of the portfolio and the opportunities ahead...
03 Dec 2021 Japan’s changed landscape
Over four decades Japan has seen 21 prime ministers come and go. Exporters such as Toyota and Toshiba have flourished but the country has also struggled with debt and deflation. Matthew Brett, manager of The Baillie Gifford Japan Trust, discusses what’s next...
12 May 2021 Japan from a distance
Banned from travelling during the pandemic, Matthew Brett, manager of The Baillie Gifford Japan Trust, explains why distance needn’t mean disadvantage.
30 Jan 2019 The Growth Portfolio
Our ten investment trust picks for long-term capital growth...
07 Nov 2018 The Great British Buffett
New research claims to have identified the secret of Warren Buffett's success; we apply similar principles to find the UK's answer to The Sage of Omaha...
06 Sep 2018 Bullseye
The third arrow of Shinzo Abe's grand plan, corporate reform, puts undervalued Japanese equities in a very attractive position...
05 Sep 2018 Fund Analysis
Baillie Gifford Japan is an ultra-low-turnover all-cap trust that buys quality growth Japanese companies...
19 Jun 2017 The investment trust advantage...
Our event in June saw eight of the UK's most experienced fund managers discuss the outlook for each major asset class...
12 Jun 2017 Fund Analysis
21 May 2017 Brave new world
We ask the top managers in each sector, region and asset class where they see the opportunities in the months ahead...
19 Apr 2016 Fund Analysis
05 Apr 2016 Fighting spirit
Why investment trusts are the ultimate recovery play...
13 Oct 2015 Fund Analysis
13 Oct 2015 Masters of the universe
Five of the best stockpickers in the entire investment companies sector...
View all

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