Baillie Gifford Japan’s results for the 12 months ended 31 August 2024 show it lagging its benchmark TOPIX Index by 4.7 percentage points – the benchmark return was 14.7%, the NAV return was 10.0%, the share price return was even worse at 4.4%. The dividend is being maintained at 10p.
5,515,000 shares or around 6% of the opening share capital were bought back at a cost of approximately £39.2m.
The results cover a period where Japanese markets finally broke through highs set in the 1980s. The board seems encouraged by the end of Japan’s negative interest policy and says “While the company has continued to face challenges as growth investing remained out of favour, these factors strengthen the board’s support for the managers and conviction that the portfolio is well positioned to generate attractive long-term returns for investor”.
The chairman’s statement references an analysis of the trust’s performance conducted in June 2023, which noted that a growth strategy was an appropriate one to follow in an economy that grows slowly due to structural factors. The board also observed that certain market environments do not favour growth investing , such as an environment of rising inflation and interest rates. [We would observe that this does not excuse the trust’s underperformance of other growth-focused Japanese strategies such as that of JPMorgan Japanese, which has outperformed the Baillie Gifford Trust by 4.4 percentage points per annum on average over the last five years.]
The management fee is being cut by £50,000 per annum. The fee structure is now 0.65% on the first £250m of net assets and 0.55% on the balance.
Extract from the manager’s report
During the year the company’s NAV total return of +10.0% compared with +14.7% for the TOPIX index in sterling terms (‘TOPIX’). In the second half of the year the NAV total return was +2.0% compared with +1.5% for the TOPIX but this very modest outperformance was not sufficient to offset the weak performance in the first half of the year. Over 5 years the cumulative NAV total return was +12.6% and over 10 years +151.8%. This compares to increases in the TOPIX of +36.7% over 5 years and +140.0% over 10 years.
The most significant positive contributors to performance were Rakuten (+1.9ppt), where the company’s mobile telecoms network, following heavy investment, is now close to breakeven, as continued acquisition of new customers has encouraged the market to recognise the potential; and SWCC Showa (+0.8ppt), where the shares went up 2.7x as its high voltage cable business has prospered. On the other hand, Shiseido (-1.2ppt) has continued to struggle against a background of weak Chinese demand for cosmetics and Rohm (-0.8ppt) has suffered from increased competition in the Silicon Carbide market. Because the company delivered a positive return in Yen over the year, gearing made a positive contribution to performance (+1.7ppt).
BGFD : Baillie Gifford Japan convinced it can turn its fortunes around
