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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
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Overview

Baillie Gifford Japan Trust (LON:BGFD) is managed with a highly-active, resolutely long-term investment strategy aimed at identifying the best long-term growth opportunities in a market packed with innovative companies in a variety of fields. Matt Brett and his colleagues on the Baillie Gifford Japanese equity team aim to ignore received wisdom and short-term chatter and identify companies which can at least double in market cap over five years, ideally looking for those long-term winners which can continue to compound even faster than the market for much longer than this.

The trust has an excellent long-term track record of outperformance. As we discuss in the Performance section, it has more than doubled the returns of the Topix Index over a decade. However, it has suffered over the past 18 months as the market has rotated from growth to value amidst rising interest rates, growing inflationary pressures and fears of an imminent global recession. Matt has, however, only become more excited as prices have fallen and his companies have generally performed well, operationally. He has been steadily increasing the Gearing level on the trust as the market has fallen, reinvesting in companies in which he has high conviction in the internet and software industries and in premium consumer stocks which have sold off the most over the past year.

BGFD’s portfolio tends to have major exposures to technology, both hardware and software, as well as internet-related companies. This area has been under pressure but Matt remains focussed on the long-term prospects and believes periods of underperformance are an unavoidable consequence of high-conviction, long-term investing.

As risk aversion has risen in the market, BGFD’s shares moved out to a double-digit Discount to NAV, although at the time of writing this has closed to 1%.

Analyst's View

It has clearly been a rough year for BGFD, but, as the managers argue, a highly-active strategy is always likely to go through periods of underperformance. Matt’s strategy is to find companies with a strong competitive advantage in their field and resilience in their business models, which means that they should be able to compound their earnings faster than the market over the long run. If he has chosen correctly, then we believe this should outweigh the vagaries of valuation, over a long holding period.

Additionally, we note that the valuation of the portfolio at the end of August was in line with the market rather than higher, out of keeping with the historic tendency for the portfolio and implying that the balance of risks may be tilted back in favour of investors. We think Matt’s decision to gear up in the light of what he sees as a disconnect between valuation and fundamentals is strong evidence of his conviction.

It may well be that the exceptional outperformance seen in 2020 was a result of particular circumstances which favoured the strategy in multiple ways. However, we would point to the trust’s history of outperformance in multiple rising markets (see Performance) and the diversity of the portfolio as evidence that the trust has the potential to outperform when risk appetite returns, even if the short-term outlook remains cloudy.

Bull

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

Bear

  • Not a discount opportunity in absolute terms
  • Structural gearing can amplify losses on the downside and volatility
  • Active share increases underperformance potential as well as outperformance
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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