The investment trust reaping rewards in Japan FUND FOCUS
INVESTMENT trust Baillie Gifford Japan does not like change. Since its launch 37 years ago, the £749 million trust has only had three managers at the helm and the fund’s focus has always been on finding opportunities and then holding them for the long term in the hope of the share prices rising.
It is a successful formula, judged by recent results. The trust has generated attractive returns for shareholders of 17 per cent over the past year, 99 per cent over three years and a whopping 135 per cent over five years. But some analysts believe there is even more to come. A recent research note from analysts at wealth manager Canaccord Genuity describes its shares as a ‘buy’ and the trust as a ‘core holding for investors looking for exposure to Japan’.
Matthew Brett is the trust’s manager, having stepped into the hot seat this May after the retirement of Sarah Whitley, who had overseen it since 1991.
Having co-managed sister fund Baillie Gifford Japanese with Whitley for ten years, Brett was the obvious choice to take over the trust’s reins. He has done so without anyone really noticing and crucially not changing the trust’s modus operandi. Buy and hold.
Although the trust has broad exposure to key Japanese business sectors, three areas excite Brett the most. These are the internet, robotics and emerging healthcare – themes that will dominate his trip to Japan next month, when he will meet the managements of some of the companies the trust is invested in – plus a few he is looking to take a stake in.
Brett says: ‘Some 28 per cent of the portfolio has an internet bent to it. I am confident that many businesses in Japan will grow as they embrace e-commerce and offer consumers a cheaper way of buying goods and services.’
A key holding is SBI, a company that Brett describes as the ‘Hargreaves Lansdown of Japan’, offering a range of internet-based financial services. A stake in the business was first bought in 2009 and it is now the trust’s second-largest holding.
Robotics also fascinates Brett, with a key holding in industrial robot manufacturer Yaskawa, bought in 2010. He says: ‘What is so exciting about robotics is that we are now where we were with the internet 20 years ago. The potential is huge, especially as robotics expands out from the industrial work space and into areas such as the automobile.’
But it is probably the area of emerging healthcare that Brett is most stimulated by. The trust has stakes in Cyberdyne and SanBio, companies using stateof-the-art technology (and robotics) to aid the recovery of people with spinal or brain injuries and those who have suffered from a stroke. ‘The pace of medical innovation is so exciting,’ he says.
While Brett says the Japanese stock market is ‘neither over nor undervalued’, he believes the economic and financial backdrop in Japan is now favourable. ‘The ogre of deflation has disappeared,’ he says. ‘From here, as investment managers, we can make decent profits but there will be inevitable stock market volatility along the way.’
Research analysts at QuotedData says key to the trust’s success has been good stock selection. With an economic backdrop now kinder to businesses, they believe this forte could hold shareholders in good stead. Baillie Gifford also runs investment trust Shin Nippon, a fund with a focus on micro and smaller companies. The average value of the 69 companies comprising the Japan trust is £9.5billion, compared with £1.4billion for Shin Nippon.