This week marks the start of a special 12 months in the sporting history of Japan.
The Rugby World Cup kicks off there this Friday and the 2020 Olympic Games will be in Tokyo next July.
It is the first time the Rugby Wold Cup will be held in Asia and 20 teams from around the globe will battle it out for the Webb Ellis trophy, famously named after a school pupil credited with inventing the game by picking up a ball during a football match in 1823.
The event will play out over the next six weeks across 48 matches in 12 different stadiums, with the final held at the Nissan Stadium in Yokohama on 2 November.
For many decades Japan has been of the most polarising markets in the world,When it comes to rugby union, most will accept New Zealand is the dominant force and the All Blacks are looking to win the trophy for the third time in a row.
They are one of only four past winners alongside Australia, South Africa and, thankfully and most memorably, England in 2003.
While there will be no shortage of nail-biting drama and it would take a brave individual to look beyond those past winners (as well as Ireland and Wales) as the most likely winners of the 2019 event.
If only investing in Japan had any sort of similar predictability.
For many decades it has been of the most polarising markets in the world, following a prolonged period of economic stagnation, which started in the 1990s.
It is only in very recent years – and the start of Abenomics – that it has really been taken seriously once again by UK (and indeed global) investors.
The challenges in Japan are unique. It is an export driven culture, meaning the Yen has a major impact on the economy, while a number of big macro drivers also come into consideration, particularly the shrinking and aging population.
But it is an area where an experienced investor can be very successful, and they do not come more experienced or successful than this week’s Best in Class.
The Baillie Gifford Japanese fund is one of the oldest open-ended funds in the sector, launching in 1984, and is supported by a large-team based in Edinburgh.
The fund has been managed by Matthew Brett since 2008 and it has been a consistently excellent outperformer.
It has been ranked 11th, 8th, 7th and 2nd in its sector over one, three, five and ten years respectively.
Since taking over the fund, Matthew has returned 225 per cent for investors compared with 123 per cent for the TOPIC and 117 per cent for the average peer.
Baillie Gifford is well known for being bottom-up, growth orientated, long-term investors and this fund is no different.
Fundamental company research is Mr Brett's primary focus and source of added value. This comes through company meetings, investment trips, external research and industry trade fairs.
Baillie Gifford has a plethora of leading Japanese funds and trusts – all of which we rate very highly - and the team conducts around 500 company meetings each year in Japan and in Edinburgh.
A team member visits Japan every six to eight weeks.
They have a broad ‘follow list’ of around 350 companies, which are discussed at monthly meetings.
These are companies that typically demonstrate one of four primary requirements: positive industry background, durable competitive advantage, strong financial characteristics and management attitude aligned to the interests of shareholders.
At a second monthly meeting, the ‘focus list’ of 60 to 80 stocks is reviewed, which are either held in one of the main strategies, or are being actively promoted by an analyst for inclusion.
The final review stage is a twice-a-month model portfolio discussion at which the relevant investment managers promote changes to portfolios, based on analyst research or other strong views they may support.
The team is pragmatic about risk in the portfolio: the biggest risk being that they misunderstand the investment they have made, which is not a risk that is captured in traditional risk models. All portfolios are independently monitored by an in-house investment risk team using quantitative tools
The final portfolio typically consists of 45-65 stocks. The top 10 holdings currently account for just under 40 per cent of the portfolio, with SoftBank Group (8.5 per cent) the largest individual holding, followed electronic commerce and internet business Rakuten (4 per cent) and financial services company SBI Holdings (4 per cent).
This is a well-managed portfolio with a clear investment strategy and a long-standing manager.
The fund has been one of the most consistent in the sector and has proven itself in many different market environments. It should be a consideration for anyone looking for access to the Japanese market.
Darius McDermott is managing director of FundCalibre
