Baillie Gifford Japan (BGFD) has defended its stake in struggling conglomerate Softbank after a rare bout of underperformance for the investment trust.
Softbank is the highest position in the fund at 6.2%, but the Japanese holding giant has been stung recently by the failed float of WeWork, one of its largest investments.
Softbank also has a hefty stake in Uber, which has tanked since its IPO in May.
In its results for the year to 31 August published today, Baillie Gifford Japan revealed its net asset value (NAV) total return for its year ended August 31 fell 5.3% after deducting borrowings at fair value.
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Its benchmark, the TOPIX index total return, fell only 0.5% in the same period. NAV per share fell to 792.1p on August 31, compared to 835.8p the previous year.
However, the trust’s share price was relatively unmoved in trading this morning, dipping 0.2% to 829p.
On Softbank, the trust’s managers Matthew Brett and Praveen Kumar said, ‘Given the scale of the company's investments there will always be headlines about some individual holding having a problem but taken in the round we are in no doubt that Softbank has a high-quality portfolio.’
The biggest underperformer was staffing business Outsourcing, with its performance in the fund plunging 47% as it was hit by issues in Japan’s ailing economy.
Another big drag on performance was online fashion retailer ZOZO, which has struggled to innovate in recent years and has been dogged by criticism over a seemingly excessive pay package given to then-chief executive Yusaku Maezawa.
Despite the trust’s underperformance, broker Numis pointed out its 10-year track record – an NAV total return of 348%, or 16.2% a year, compared to 141% (9.2% a year) for the index - and believes it remains an ‘attractive core holding’ for exposure to Japan.
Numis said, ‘H2 2018 was an understandably tough period for relative performance for the fund, given the fund’s growth focused approach, and performance has rebounded strongly in 2019.
‘The portfolio has a high active share (84%), and so there will inevitably be periods where performance differs significantly from the benchmark.’