Baillie Gifford Japan celebrates 40th birthday in style – Over the year to 31 August 2021, The Baillie Gifford Japan Trust NAV total return was 20.9%, well-ahead of the benchmark (TOPIX) which returned 16.3%. The discount, which started the year at 2.7%, moved to a premium of 1.1% and shareholders got a return of 25.7%. The chairman says that the largest positive contributors to performance over the year came from physical-world businesses whilst negative contributions mainly came from the internet area. The Board is recommending a dividend of 6p, an increase of 33.3% on last year’s 4.5p. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the company. Over the period, the trust issued 2,470,000 shares raising £26.5m.
This year marks the 40th anniversary of the trust. Over that period up to 31 August 2021, the NAV total return was 10.6% per year on average, more than double the TOPIX total return of 4.7% per year.
Extract from the manager’s report
“Japan is now making reasonable progress with its vaccination programme, following a slow start, and overall case numbers remain low by global standards. It seems likely that Japan will enter the endemic phase of the coronavirus around the same time as many other developed economies. However, the coronavirus pandemic has been a global issue. For example, many of the suppliers to Japanese companies are based in South-East Asia where there continue, for now, to be significant virus-related problems. Many supply chains are complex and the temporary lack of availability of some parts can have significant knock-on impacts. Also, on the demand side, different parts of the globe have been emerging at varying speeds creating surges in demand for certain products at different times whilst supply is sometimes intermittent. Unsurprisingly this combination is leading to short-term difficulties that may still take some time to resolve. Our meetings with individual companies suggest that many are having to respond by adjusting product schedules, making design modifications, and increasing prices. Capitalism is an effective system for meeting demand but, inevitably, it will take time for all the various problems to be worked through.
Throughout this period corporate Japan has shown admirable resilience, as demonstrated by the continuing increases in dividends being paid by the holdings of your Company. This determination by Japanese management to continue paying dividends is a significant improvement from their actions during the global financial crisis. Coupled with the significant cash positions of many Japanese companies it cements our view that it is quite realistic to expect growth in dividends to exceed growth in earnings, perhaps for another decade. While our focus remains on securing capital growth it is expected that growth businesses can provide a secure and growing income stream, and as mentioned in the Chairman’s statement, this will lead to a further increase in the dividend paid to shareholders this year.
During the year, the NAV total return per share (with the borrowings deducted at fair value) was 20.9%, exceeding the total return of the Company’s benchmark which was 16.3%. Over 5 years the NAV total return has outpaced the benchmark by 3.4% p.a. and over ten years by 5.6% p.a., demonstrating the benefit to shareholders of an active, long-term, growth-orientated approach to investing.
The largest positive contributors to performance mainly came from physical-world companies where business conditions had improved from the very difficult times that many experienced late last year. Outsourcing (a staffing company) was the leading contributor to performance. Run by the energetic entrepreneur Mr Doi, it has grown and internationalised its business over time to reduce its vulnerability to economic shocks and it seems that the market now has a greater understanding of how the resilience has improved. We also had significant contributions from Raksul (logistics and printing), DENSO (Toyota group electronics company), Misumi (dies and small parts) and Topcon (positioning systems) all of which are clearly companies with substantial physical-world operations.
Significant negative contributions mainly came from the internet area. The share prices of these businesses had been generally good performers in the previous year as they were resilient to the challenges of the novel coronavirus and, in some cases, benefitted from increased demand. Notable names included long-standing holdings GMO Internet (internet conglomerate), Bengo4.com (lawyers website), last year’s star Softbank (internet conglomerate) and newer holding GA Technologies (online real-estate). Calbee (potato snacks) and Colopl (mobile phone gaming) were also significant negative contributors. For each of these companies we retain conviction in the investment case. “
BGFD : Baillie Gifford Japan celebrates 40th birthday in style