Baillie Gifford Japanese: October 2026 fund update

• Matthew Brett has a long history of investing in Japanese companies and has the support of a highly experienced team

• The fund focuses on companies that the managers believe have strong growth potential

• Performance versus the broader Japanese stock market and peers has been strong over the long term

• This fund features on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Baillie Gifford Japanese fund invests in companies based in Japan. It invests mainly in larger companies but also invests more in medium-sized companies than some other funds in the Japan sector. Investing in smaller businesses adds risk. The fund is managed in line with Baillie Gifford's growth-focused investment philosophy, concentrating on companies with high or durable growth potential.

This fund could be used to diversify a global investment portfolio and add long-term growth potential. It could also be used to sit alongside other funds using a value investment style and a focus on companies that have recovery potential.

Manager

Matthew Brett is the fund’s lead manager. He has more than 20 years’ experience in the investment industry, all of which have been spent at Baillie Gifford. This means that he is well-embedded in the firm’s culture and style of investing.

Brett joined Baillie Gifford’s Japan team in 2003. He became co-manager of the Japanese fund in 2008, alongside Sarah Whitley, another experienced investor in Japan, and later became the fund’s lead manager. He continued to work closely with Whitley until she retired in 2018 and learned a lot from her knowledge and experience during their time working together.

Brett also manages the Baillie Gifford Japan Trust and co-manages the Baillie Gifford Japanese Core Growth fund with Iain Campbell, both of which have similarities with this fund. His primary focus is on the Japanese fund and Japan investment trust, though.

Jared Anderson became co-manager in January 2025. He joined Baillie Gifford in 2016 and has previously been a member of its Global Alpha and Japanese Equities teams so was already familiar with the fund’s investment process. Anderson also co-manages the Baillie Gifford Smaller Companies fund and Shin Nippon Investment Trust. The smaller companies identified for these funds are used as potential future opportunities for the Japanese fund.

We believe that Brett and Anderson’s fund management responsibilities are manageable given the overlap in investments and process. Both managers also have the support of and work with the wider Japanese team. We like the collaborative approach, with ideas coming from across the team, and a focus on developing talent.

Process

The fund’s philosophy is aligned with other Baillie Gifford funds. This means that Brett and Anderson focus on the fundamentals of individual companies and their long-term growth potential. They invest in what they believe to be some of the best companies in Japan with at least a five-year view.

The fund invests in companies at different stages of growth, which are segmented into four buckets:

Secular Growth - companies with higher growth potential

Growth Stalwart - steady compounders that may deliver steadier rates of growth

Special Situations - larger conglomerates or businesses trading on a low share price that the managers don’t believe reflects their true worth

Cyclical Growth - companies that could be more sensitive to changes in the health of the economy

This makes the managers ‘growth’ investors, but they’re flexible and invest in a range of companies with different drivers of growth, including some that may not be typical of peers with a similar investment style. Importantly, each business must have an adaptable or resilient competitive advantage that could help them grow over the next 5–10 years.

Industrials currently make up the largest portion of the fund, although the managers invest less in the sector than the broader Japanese market. Conversely, the managers find plenty of opportunities in the communication services and consumer staples sectors.

The managers recently invested in gaming company Bandai Namco. The managers believe that Japanese gaming companies with strong heritage and well-known characters will benefit from growing revenue in the gaming industry, so added the company to sit alongside existing investments in Nintendo and Sega Sammy.

Culture

Baillie Gifford is an independent private partnership founded in 1908. It's owned by partners who work full time at the firm. This ownership structure means that senior managers have a vested interest in the company, and its funds, performing well. Brett is a partner in the firm, which means he’s well-incentivised for this fund to perform well, as well as to ensure that he makes a valuable contribution to the wider business and its success.

We think that this has helped cultivate a culture with a long-term focus, where investors' interests are at the centre of decision-making. We also like that fund managers are incentivised in a way that aligns their interests with those of long-term investors and should retain talented managers.

ESG Integration

All of Baillie Gifford’s funds are run with a long-term investment horizon in mind. The firm’s fund managers see themselves as long-term owners of a business, not short-term renters. Assessing whether society will support, or at the very least, tolerate, the business model over the long term, and whether management will act as good stewards of shareholders’ capital, are important parts of the investment process.

Investment teams, including the Japan team, have access to dedicated ESG (Environmental, Social, and Governance) specialists, and the firm also has a Climate team and ESG services team, which is responsible for voting operations and ESG data. Individual investment teams are responsible for voting and engagement for the companies they invest in. Investment in controversial weapons and companies involved in recreational drugs are prohibited across the firm.

The firm reports all its voting decisions and provides rationale in situations in which it votes against management or abstains, in a detailed quarterly voting report. There is also a quarterly engagement report, which details the companies engaged with, and the topic discussed, and further engagement case studies are available on the website. All this information is brought together in the firm’s annual Investment Stewardship Activities report.

Baillie Gifford withdrew from the Net Zero Asset Managers’ Initiative and Climate Action 100+ in 2024, citing concerns that membership had become contested and risked distracting from its core responsibilities. We viewed this as a disappointing backward step, but the firm stated that this decision did not change its approach to analysing climate-related risks or engaging with investee companies.

Sustainability and ESG issues form a key part of the team’s research and analytical framework, but this fund has one of the highest ESG risk scores of those under our research coverage. The companies within the fund could face increased regulatory scrutiny, reputational damage, and operational challenges, potentially affecting the fund's future performance.

Cost

This fund is available at an annual ongoing fund charge of 0.63%, making it one of the lowest-cost actively managed funds in the Japan sector.

Our platform charge of up to 0.35% per year also applies, except in the HL Junior ISA, where no platform fee applies. Both a buy and sell instruction will be subject to HL dealing charges.

Find out more about our charges.

Performance

Since Brett became involved in the fund’s management in 2008, the fund has returned 417.1%*, compared with 347.9% for the average fund in the IA Japan sector. This is an impressive record, though as always past performance isn’t a guide to future returns.

Given the fund’s growth-focused investment style, it tends to perform better when growthier companies are in favour, but not as well when value-style companies or those undergoing a recovery are performing well. Over the longer term, our analysis shows that the managers have added value through stock picking – the ability to invest in companies that go on to perform well, regardless of what sector they’re in, rather than investing based on a view of the overall economy.

Over the 12 months to the end of September 2026, returns of 19.4% trail that of the IA Japan sector, where the average fund gained 27.3%. Value investing was favoured for most of the year, whereas medium-sized companies didn’t perform as strongly as large ones. Both of these were headwinds for the fund.

Some of the fund’s investments in financials detracted, most notably SBI Holdings. The fund also invests in some companies that other investors fear may be at risk from artificial intelligence (AI) disruption, including CyberAgent and Rakuten. However, the managers retain conviction in these companies and believe that they will actually benefit from further AI developments.

Electrical component manufacturer Murata was the largest contributor to performance. Investments in technology conglomerate SoftBank and mining company Sumitomo Metal also performed well.

Over the longer term, we expect the managers to deliver performance from good stock picking and when growth investing is in favour, though there are no guarantees.