Baillie Gifford Japanese Smaller Companies
Baillie Gifford employs its renowned growth investment process on the exciting, but high-risk area of Japanese smaller company investing with this fund. The managers have a 'buy and hold' approach, and are willing to ride out short-term share price movements in order to take long-term benefits from the best growth prospects. They can invest in a broad range of sectors and look specifically for innovative names that have the potential to be future industry leaders. They can and will participate in initial public offerings (IPOs).
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Praveen is an investment manager in the Japanese Equities Team at Baillie Gifford. He manages the Japanese Smaller Companies Fund, related Japan Small Cap Strategy segregated accounts, and the Shin Nippon Investment Trust Plc, and is the deputy manager of the Japan Trust Plc. He is also a founder and member of the International Smaller Companies Portfolio Construction Group. Prior to joining Baillie Gifford in 2008, Praveen worked at FKI Logistex. He graduated with a BEng in Computer Science from Bangalore University in 2001 and completed an MBA at the University of Cambridge in 2008.
Paul Schwerda became co-manager of the fund in February 2023, having joined Baillie Gifford in 2018. His deep interest in Japan, fueled by his experience living there, drives his focus on identifying companies that will influence Japan's economic future. Paul earned an MA in Indian Studies from the University of Tübingen in 2011 and an AM and PhD in South Asian Studies from Harvard University in 2015 and 2017, respectively.
Praveen is an investment manager in the Japanese Equities Team at Baillie Gifford. He manages the Japanese Smaller Companies Fund, related Japan Small Cap Strategy segregated accounts, and the Shin Nippon Investment Trust Plc, and is the deputy manager of the Japan Trust Plc. He is also a founder and member of the International Smaller Companies Portfolio Construction Group. Prior to joining Baillie Gifford in 2008, Praveen worked at FKI Logistex. He graduated with a BEng in Computer Science from Bangalore University in 2001 and completed an MBA at the University of Cambridge in 2008.
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Company Description
Founded in 1908 and employee-owned, Baillie Gifford is based in Edinburgh but has offices in London and New York. Awarded the Elite Provider for Equities Rating each year from 2015 to 2021, it specialises globally in equities, fixed income and multi-asset portfolios. The firm is owned by its senior executives and operates as a partnership.
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Investment process
The managers aim to identify smaller businesses that offer above-average growth prospects. They target companies with innovative business models and the potential to disrupt their industries; those that challenge traditional Japanese practices; as well as companies with strong overseas growth prospects. Sectors that are of particular interest include Japan’s emerging services industry, which is fast expanding due to government deregulation and corporate outsourcing, as well as technology and healthcare.
True to Ballie Gifford’s investment philosophy, the managers take a long-term view and do not rely on short-term valuations when they selects stocks. They invest with a time horizon of at least three to five years and are happy to hold stocks that may be classed as overvalued by other managers, as long as they meet the investment quality criteria.
Ideas are sourced from a wide variety of inputs, including from the team’s 500+ company meetings a year. These ideas are then debated with the wider investment team, using the experience and diversity of thought to develop a rounded view on the company. Within this, the team is asking four key questions about the company: What is the size of the opportunity? What problem is the company trying to solve? Is the management team aligned with the firm? And is management capable of delivering on the idea?
When ideas have been identified and validated, the managers will back them with conviction for the long term.
Risk
The fund is very stylistic and invests in smaller companies meaning it will be at the top of the risk spectrum. The portfolio is independently monitored by an in-house investment risk team using quantitative tools. This team meets formally with the managers on a quarterly basis to discuss risk.
ESG
ESG - Limited
With this fund, the managers take a long-term approach, looking for growth opportunities with firms that are likely to be future leaders. They believe that this long-term approach incorporates a natural bias towards sustainable business models. However, this is not a formal policy of the philosophy or process. Material ESG issues that are identified in the analysis will be considered as possible reasons to not invest, but this will be on a case-by-case basis, rather than a systematic approach. There is a strong focus on governance, with the team having regular engagement with the management of companies already held in the fund and those of prospective holdings. This is especially important when considering the smaller size of many of the companies held.
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