Baillie Gifford Japan Trust: January 2026 trust update

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

• The manager focuses on companies he believes have high-growth potential

• Following a difficult period of performance, the trust has performed strongly over the past year

How it fits in a portfolio

Baillie Gifford Japan Trust invests in companies based in Japan. It invests in companies of all sizes, including higher-risk small and medium-sized businesses. The trust is managed in line with Baillie Gifford's growth-focused investment philosophy, with a focus on companies with high or sustainable growth potential.

This trust 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 or trusts using a value investment style and a focus on companies that have recovery potential.

Manager

Matthew Brett is the trust’s lead manager. He has 22 years’ experience in the investment industry, all of which have been spent at Baillie Gifford. This means he’s well-embedded in the firm’s culture and style of investing.

Brett joined Baillie Gifford’s Japan team in 2003 and became lead manager of the Japan Trust in 2018. He became co-manager of the Baillie Gifford Japanese fund (which has significant overlap with the trust) 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 and left Baillie Gifford in 2018 and learned a lot from her knowledge and experience during their time working together.

Brett also co-manages the Baille Gifford Income Growth fund with Karen See. This has similarities with the Japan Trust, though it focuses more on providing an income. His primary focus is on the Japanese fund and investment trust.

We believe Brett’s fund management responsibilities are manageable given the overlap in investments and process. He also has the support of and works 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 trust’s philosophy is aligned with other Baillie Gifford funds. This means Brett focuses on the fundamentals of individual companies and their long-term potential for growth. He invests in what he believes to be some of the best companies in Japan with at least a five-year view.

The trust invests in companies at different stages of growth, and is segmented into four buckets:

Secular Growth - companies with high 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.

Overall, this makes the manager a ‘growth’ investor. But he’s flexible and invests in a range of companies with different drivers of growth, and some that are lowlier valued and may not be typical of a growth investor.

Importantly, each business must demonstrate resilience and have an adaptable or durable enough competitive advantage that could help them deliver growth over the next 5-10 years.

This has led the trust to have a bias towards online and digital businesses, automation-related companies, and companies that could benefit from rising consumption across Asia. On the other hand, they currently tend to avoid industries they believe are in long-term decline, such as autos, ‘old-fashioned’ financial companies and banks, and iron and steel.

Computer gaming is an area that’s recently increased. Global revenue from gaming was $187.7bn in 2024, far surpassing other media forms like music and film. The managers believe Japanese gaming companies with strong heritage and well-known characters, which are conservatively managed could benefit from this appeal and growth over the long term. Sega Sammy and Square Enix were therefore recently added to the trust.

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 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 trust to perform well, as well as to ensure he makes a valuable contribution to the wider business and its success.

We think 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. So, 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 is an important part 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.

Baillie Gifford courted controversy in 2024 when it left the Net Zero Asset Managers’ Initiative, a group of asset managers that have committed to achieving net zero carbon emissions by 2050, and the Climate Action 100+ collaborative engagement scheme. It claimed membership of the organisations “has become contested”, adding “this risks distracting from our core responsibilities”. This is disappointing but we’re encouraged the net zero and engagement-related commitments remain unchanged.

Within this trust, sustainability and ESG issues form a key part of the manager’s research and analytical framework. We feel ESG is always considered when the team researches all companies, though this is not a specialist responsible or sustainably invested trust.

Cost

The trust’s ongoing annual charge for the year to 31 August 2025 is 0.71%. Investors should refer to the latest annual report and accounts, and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform charge of 0.45% (capped at £200 p.a. for a SIPP and £45 p.a. for an ISA) per annum also applies. Our platform charge doesn’t apply if held in a Fund and Share Account. As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges. There is no dealing charge within a Junior ISA.

Performance

Since Brett became the trust’s lead manager, it’s grown 18.50%* in share price terms compared with 56.25% for the average trust in the AIC Investment Trust Japan sector. As always past performance isn’t a guide to future returns.

Given the trust’s growth-focused investment style, it tends to perform better when growthier companies are in favour, and this was the case for the first few years of Brett’s management. But the trust struggled from 2021 until early 2024 when value-focused companies or those undergoing a recovery performed better and the manager’s growth investment style was out of favour. Smaller companies have also been weaker than larger ones over this time, also acting as a headwind for the trust.

More recently over the past 12 months the trust’s grown 27.66%, an attractive return for investors and ahead of the sector, which grew 26.11%.

An investment in internet services company Softbank was one of the strongest performers over the year, due to rising investor interest in its links to AI (artificial intelligence). Fanuc, which provides automation products, Raksul, an online platform providing cloud-based printing, and Sumitomo Metal Mining also performed well.

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

The fund currently uses gearing (borrowing to invest) of 15%, which increases returns when markets rise but losses when they fall, so it increases risk. At the time of writing the trust trades on a discount to NAV of 8.77% compared to a 12 month average discount of 11.14%.