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Fund Profile

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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
Matthew Brett: Growth stocks are available at value stock multiples in Japan…
Overview

Over the last year, Matthew Brett, manager of Baillie Gifford Japan (BGFD), has responded to his growth style being out of favour by leaning into his high-conviction ideas which have done poorly and building up gearing, reflecting his positive view on his portfolio’s prospects after a sell-off has left them looking cheap, even though they are largely performing well.

Matt, with deputy Praveen Kumar, aims to find those companies in Japan with the best long-term growth prospects, setting himself the target of finding stocks which can at least double in five years. At times this strategy has produced exceptional Performance, but the environment for the last three years has favoured different styles of investment. The last three years have seen weak performance which the managers largely attribute to short-term factors. In their view, while cyclical companies have been in favour this year thanks to an improving macro outlook for Japan, the best long-term opportunities remain in areas of secular growth, particularly given Japan is likely to remain a low growth economy.

The portfolio typically owns plenty of businesses in technology, hard and soft, and in internet-related companies, although the managers find examples of what they are looking for in a broader variety of sectors. As internet-related companies have sold off sharply over the past two years they have been adding to these, and even buying back in to some former long-term winners of theirs which they had sold on valuation grounds (see Portfolio).

The conviction is evident in the decision to retain a high level of Gearing, with facilities being renewed over the summer. The Discount remains wide by historical standards.

Analyst's View

Investors are probably right to be sceptical when managers say they have high conviction in their portfolios: it is an unusually honest manager who will say the outlook is poor (although they do exist!). But when there is tangible evidence of the conviction being claimed, for example when the manager is committing to significant levels of gearing, we think investors should sit up and listen. This is the case with BGFD, for which Matt Brett has been happy to let net gearing rise and buy back into companies in the portfolio which have sold down. If sentiment is cyclical, then the current valuation of many of BGFD’s companies seems unlikely to last, and there is the potential for strong returns. Added to this is the potential for returns from a narrowing discount, which is c. 11% at the time of writing.

It is important to note that this is a very active portfolio, and individual stock picks are likely to be crucial to returns. Companies like Softbank and Rakuten, both in the top ten, have idiosyncratic drivers of returns, while many of the companies are at a relatively early stage of development where the risks are higher and the range of outcomes wider.

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
  • Structural gearing can amplify losses on the downside and volatility
  • Strength in the Japanese economy could lead to growth style remaining out of favour
Continue to Portfolio

Fund History

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.
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 fund managers in the UK with similar characteristics...
05 Sep 2018 Fund Analysis
Baillie Gifford Japan is an ultra-low-turnover all-cap trust that buys quality growth Japanese companies...
05 Sep 2018 Bullseye
The third arrow of Shinzo Abe's grand plan, corporate reform, could have significant implications for undervalued Japanese equities...
View all

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