Over the year to 31 August 2020, Baillie Gifford Japan’s (BGFD) NAV increased by 6.8% in total return terms, compared to a (0.1%) fall in the benchmark TOPIX index. BGFD’s shares rose by 3.7% over the year.
Performance led by Softbank
Approximately 33% of the portfolio is in internet-related businesses and a further 14% in automation related businesses. The largest contributor to performance this year was Softbank Group. There were also good contributions to performance from a variety of internet holdings, including GMO Internet, M3, Bengo4.com and Demae-CanAs. In the manager’s report section, BGFD said the following: “SoftBank Group (the strategic holding company) was the largest positive contributor to performance this year as the shares substantially outpaced the wider market, delivering a total return of 26% in sterling terms. We discussed the attractions of the company in some detail in last year’s annual report but to summarise we believe that the combination of attractive underlying assets, a share price that trades at a large discount, and value-added management mutually reinforce each other to create a compelling investment opportunity. We also had good contributions from a variety of our internet holdings, including long-standing investments such as GMO Internet (the internet conglomerate) and M3 (the medical website), as well as more recent purchases such as Bengo4.com (the lawyers’ website) and Demae-Can (the food delivery website).”
As well as outlining the investment rationale for SoftBank Group, in last year’s annual report we also discussed several entrepreneurial smartphone gaming companies. Among these, Colopl was the star, as its new game Dragon Quest Walk proved to be a hit, and the shares delivered a total return of 29% in sterling terms while neither Gree nor Mixi were remarkable with the former delivering a total return of -12% and the latter 1% in sterling terms over the year.”
Inpex and Mazda lead detractors
On performance detraction, the manager noted: “On the other hand, the largest negative contributors to performance were Inpex and Mazda. Inpex has succeeded in bringing its large liquified natural gas (LNG) project Ichthys to production but weak energy prices have limited earnings growth relative to what we had expected. Mazda continues to make progress in improving brand perception which we believe to be key to securing good margins in the longer-term but has suffered from very low vehicle demand as a consequence of the pandemic. We continue to retain both holdings.”
‘More of the same from the new PM’
Keith Falconer, BGFD’s chairman, provided his view on the outlook for the company and wider Japan: “I am sure it is no more challenging to offer a view on the future than it is in any other year. It just feels that way! But the unknowns ranging from geo-politics to the virus and a possible vaccine, to unfettered monetary loosening, negative bond yields, closed borders and the general pace of change do not encourage me to offer a view.
In September, Japan appointed a new Prime Minister. Yoshihide Suga took over from Shinzo Abe who stepped down due to ill health. Mr Suga had been Mr Abe’s closest aide throughout his eight-year term, and while he may push to accelerate structural change, he is expected to continue broadly with existing monetary, fiscal and regulatory policies.”
BGFD: Softbank leads performance for Baillie Gifford Japan