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‘A paradise for growth investors’: A Baillie Gifford fund manager overseeing almost $2 billion explains why investors are underestimating Japanese stocks — and shares his 3-part strategy for picking winners


Baillie Gifford portfolio manager Praveen Kumar

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Despite being nominated for the rising talent award for fund management this year by fund tracker Morningstar, Baillie Gifford portfolio manager Praveen Kumar doesn’t have any trade secrets in his stock-picking strategy. 

It’s very “simple”, Kumar said.

After starting his career as a computer scientist and management consultant, Kumar switched careers into investment fund management. 

In his first year on Baillie Gifford’s rotational program, he remembers being recommended to read “Common Stocks and Uncommon Profits” by Phillip Fisher.

Now 13 years on, Kumar manages  £612 million assets for the Baillie Gifford’s Shin Nippon investment trust, which focuses on small Japanese companies. He also deputy manages £924 million assets for  Baillie Gifford’s Japan Trust, which focuses on medium- to smaller-sized companies.

According to Morningstar, on October 7, both funds have outperformed their benchmarks in 1-year trailing returns. Baillie Gifford’s Shin Nippon investment trust’s net asset value per share has risen 27.57%  compared its benchmark, MSCI Japan small cap index, which has only risen 2.07%. Baillie Gifford’s Japan Trust NAV per share has risen 14.25%  compared to the benchmark, TOPIX index, which has only risen 3.33%.

But despite this, investing in Japan isn’t on many investors’ radar. Kumar hopes to change that perception by demonstrating the long-term returns that can be driven through high-growth stocks in the country.

More attention has turned to investing in Japan within the last month. Morningstar recently reported eight of the 10 best-performing funds in September were Japanese-focused and, separately, Warren Buffett invested $6 billion in five Japanese trading houses.

However Kumar doesn’t think Buffett’s investment will change the perception on investing in Japanese stocks.

“Japan is very much seen as a very dull economy, mature economy, not much growth to be had,” Kumar said. And it’s almost seen as sort of a value kind of market. And obviously, now with Mr. Buffett’s investment in a bunch of trading companies, it’s sort of reinforced that idea.”

In fact, Japan is the polar opposite, Kumar said. Japan is a “paradise for growth investors”, with a whole layer of fast growing businesses being ignored by investors, Kumar said.

Misconceptions about investing in Japan

Kumar highlights there is a lot of evidence that the stock market and economy are not connected. He urges investors to think about this when considering whether to invest in the Japanese stock market.

“People need to mentally disentangle an economy and a stock market. So just because Japan is a very mature economy, it’s GDP growth isn’t exactly spectacular, probably 0.5% per annum to 1%,” Kumar said. “That has nothing to do with how much money you can make in the stock market. So you still have these kinds of exceptional growth companies in Japan that you can invest in, a lot of them small caps.”

As some countries in Europe as well as states in the US have seen a rise in COVID-19 cases. Some investors are starting to view Japan as a safe haven. Especially as the news flow around the US election has started to …read more

Source:: Business Insider

      

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