Developed Asia inc Japan Quarterly Update 30 June 2021 - BAILLIE GIFFORD
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BAILLIE GIFFORD Developed Asia inc Japan Quarterly Update 30 June 2021
Contents
02 Executive Summary Baillie Gifford Investment Management (Europe) Limited
03 Commentary is a wholly owned subsidiary of Baillie Gifford Overseas
Limited, which is wholly owned by Baillie Gifford & Co.
05 Performance Persons resident or domiciled outwith the UK should
11 Portfolio Overview consult with their professional advisers as to whether they
require any governmental or other consents in order to enable
12 Governance Summary them to invest, and with their tax advisers for advice relevant to
16 Governance Engagement their own particular circumstances.
This document contains information on investments which
17 Voting does not constitute independent research. Accordingly, it is not
18 Transaction Notes subject to the protections afforded to independent research and
Baillie Gifford and its staff may have dealt in the investments
19 Legal Notices concerned.
All information is based on a representative portfolio, new
client portfolios may not mirror the representative portfolio
This document is solely for the use of professional exactly. As at 30 June 2021, in US dollars and sourced from
investors and should not be relied upon by any other Baillie Gifford & Co unless otherwise stated.
person. It is not intended for use by retail clients.
Canada
Important Information and Risk Factors
Baillie Gifford International LLC is wholly owned by Baillie
Baillie Gifford Overseas Limited provides investment
Gifford Overseas Limited; it was formed in Delaware in 2005
management and advisory services to non-UK
and is registered with the SEC. It is the legal entity through
Professional/Institutional clients only. Baillie Gifford Overseas
which Baillie Gifford Overseas Limited provides client service
Limited is wholly owned by Baillie Gifford & Co. Baillie
and marketing functions in North America. Baillie Gifford
Gifford & Co and Baillie Gifford Overseas Limited are
Overseas Limited is registered with the SEC in the United
authorised and regulated by the Financial Conduct Authority.
States of America.
Baillie Gifford Asia (Hong Kong) Limited
The Manager is not resident in Canada, its head office and
柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford
principal place of business is in Edinburgh, Scotland. Baillie
Overseas Limited and holds a Type 1 and Type 2 licence from
Gifford Overseas Limited is regulated in Canada as a portfolio
the Securities & Futures Commission of Hong Kong to market
manager and exempt market dealer with the Ontario Securities
and distribute Baillie Gifford’s range of collective investment
Commission ('OSC'). Its portfolio manager licence is currently
schemes to professional investors in Hong Kong. Baillie
passported into Alberta, Quebec, Saskatchewan, Manitoba and
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Telephone +852 3756 5700.
OSC as an exempt market and its licence is passported across
Baillie Gifford Investment Management (Europe) Limited
all Canadian provinces and territories. Baillie Gifford
provides investment management and advisory services to
Investment Management (Europe) Limited (‘BGE’) relies on
European (excluding UK) clients. It was incorporated in
the International Investment Fund Manager Exemption in the
Ireland in May 2018 and is authorised by the Central Bank of
provinces of Ontario and Quebec.
Ireland. Through its MiFID passport, it has established Baillie
Gifford Investment Management (Europe) Limited (Frankfurt South Africa
Branch) to market its investment management and advisory
services and distribute Baillie Gifford Worldwide Funds plc in Baillie Gifford Overseas Limited is registered as a Foreign
Germany. Similarly, it has established Baillie Gifford Financial Services Provider with the Financial Sector Conduct
Investment Management (Europe) Limited (Amsterdam Authority in South Africa.
Branch) to market its investment management and advisory
services and distribute Baillie Gifford Worldwide Funds plc in Japan
The Netherlands.
Baillie Gifford Investment Management (Europe) Limited Mitsubishi UFJ Baillie Gifford Asset Management Limited
also has a representative office in Zurich, Switzerland pursuant (‘MUBGAM’) is a joint venture company between Mitsubishi
to Art. 58 of the Federal Act on Financial Institutions UFJ Trust & Banking Corporation and Baillie Gifford
("FinIA"). It does not constitute a branch and therefore does Overseas Limited. MUBGAM is authorised and regulated by
not have authority to commit Baillie Gifford Investment the Financial Conduct Authority.
Management (Europe) Limited. It is the intention to ask for the
authorisation by the Swiss Financial Market Supervisory South Korea
Authority (FINMA) to maintain this representative office of a
foreign asset manager of collective assets in Switzerland Baillie Gifford Overseas Limited is licensed with the Financial
pursuant to the applicable transitional provisions of FinIA. Services Commission in South Korea as a cross border
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 53266 INS QR 0137
Past Performance
Discretionary Investment Manager and Non-Discretionary
Investment Adviser. Past performance is not a guide to future returns. Changes in
Australia investment strategies, contributions or withdrawals may
materially alter the performance and results of the portfolio.
Baillie Gifford Overseas Limited (ARBN 118 567 178) is
Potential for Profit and Loss
registered as a foreign company under the Corporations Act
2001 (Cth). It is exempt from the requirement to hold an All investment strategies have the potential for profit and loss.
Australian Financial Services License under the Corporations
Act 2001 (Cth) in respect of these financial services provided Stock Examples
to Australian wholesale clients.
Any stock examples, or images, used in this paper are not
Qatar intended to represent recommendations to buy or sell, neither is
it implied that they will prove profitable in the future. It is not
The materials contained herein are not intended to constitute an known whether they will feature in any future portfolio
offer or provision of investment management, investment and produced by us. Any individual examples will represent only a
advisory services or other financial services under the laws of small part of the overall portfolio and are inserted purely to
Qatar. The services have not been and will not be authorised by help illustrate our investment style. A full list of portfolio
the Qatar Financial Markets Authority, the Qatar Financial holdings is available on request.
Centre Regulatory Authority or the Qatar Central Bank in
accordance with their regulations or any other regulations in
Qatar.
Oman
Baillie Gifford Overseas Limited (“BGO”) neither has a
registered business presence nor a representative office in
Oman and does not undertake banking business or provide
financial services in Oman. Consequently, BGO is not
regulated by either the Central Bank of Oman or Oman’s
Capital Market Authority. No authorization, licence or
approval has been received from the Capital Market Authority
of Oman or any other regulatory authority in Oman, to provide
such advice or service within Oman. BGO does not solicit
business in Oman and does not market, offer, sell or distribute
any financial or investment products or services in Oman and
no subscription to any securities, products or financial services
may or will be consummated within Oman. The recipient of
this document represents that it is a financial institution or a
sophisticated investor (as described in Article 139 of the
Executive Regulations of the Capital Market Law) and that its
officers/employees have such experience in business and
financial matters that they are capable of evaluating the merits
and risks of investments.
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Baillie Gifford Overseas is not licensed under Israel’s
Regulation of Investment Advising, Investment Marketing and
Portfolio Management Law, 5755-1995 (the Advice Law) and
does not carry insurance pursuant to the Advice Law. This
document is only intended for those categories of Israeli
residents who are qualified clients listed on the First
Addendum to the Advice Law.
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000 bailliegifford.com
Copyright © Baillie Gifford & Co 2009. Ref: 53266 INS QR 0137Executive Summary 02 Product Overview Developed Asia inc Japan is a long-term, regional equity strategy adding value through active management by identifying and exploiting inefficiencies in growth companies predominantly listed in Japan, Hong Kong, Singapore, Australia and New Zealand. Risk Analysis Key Statistics Number of Holdings 50 Typical Number of Holdings 30-50 Active Share 79%* Rolling One Year Turnover 15% *Relative to MSCI Pacific Index. Source: Baillie Gifford & Co, MSCI. Developed Asian equities delivered a lacklustre return during the quarter Within the region Australia fared best, helped by continued strength in most commodities and a faster recovery from the pandemic The portfolio lagged the benchmark slightly during the quarter but remains well ahead over longer time periods Baillie Gifford Key Facts Assets under management and advice US$486.8bn Number of clients 730 Number of employees 1497 Number of investment professionals 300
Commentary 03
Both Serena Williams and Roger Federer have made a products selling well there. Although Unicharm has a
remarkable contribution to the world of tennis, winning successful business in Japan the rates of growth being
43 major titles between them in a professional career that delivered in China are significantly higher and we expect
has spanned over 20 years. At the age of 39 both still this to continue for many years to come. In areas such as
feature among the world’s top players and, in a post skin care and hygiene Chinese consumers are willing to
pandemic world, will still likely attract sell-out crowds pay up for quality and reliability, playing into the hands
wherever they play. Other sports stars may have risen of the established Japanese brands. A structural rise in
faster or commanded more attention during their time in inbound tourism – which began around five years ago
the sun, but such consistency and durability is admirable and we expect to resume once the Covid-19 pandemic is
and should be celebrated. Arguably it should be no behind us – has also created a new growth market for
different when it comes to a clients’ investments. many Japanese retailers, as well as increasing brand
Rapid growth stocks, most notably those with awareness among China consumers. Given the size of the
disruptive and novel business models, have gained most Chinese market and scope for wealth to continue rising,
of the air time for growth investors of late and indeed high levels of Chinese demand for premium Japanese
have featured most prominently among the most brands seems likely to be a multi-decade phenomenon.
successful investments for clients during the past few Second, improving attitudes towards corporate
years. In contrast, steady growth businesses that benefit governance has increased the scrutiny on returns
from franchise characteristics, consistent free cashflow generated by many Japanese companies and underpinned
generation and durability have been conspicuously absent enthusiasm for self-help, most notably among
from the headlines and recent winners. This can partly be longstanding franchises that have developed multiple
explained by a challenging domestic environment in inefficiencies. Shiseido, one of the top performers for the
Japan (which accounts for just under portfolio in recent years, has successfully rationalised its
two-thirds of the Developed Asia investment universe) product portfolio and reinvested savings into marketing
with unfavourable demographics, a deflationary mindset and promotion spend for prestige products with high
and poor standards of corporate governance weighing on growth prospects in China. Following the recent sale of
shareholder returns there. At the same time high starting the low-margin personal care business these now account
valuations for dependable and durable growth stocks for around two-thirds of profits.
have presented an additional headwind, making it We have talked at length in recent months about Japan’s
difficult for us to see sufficient upside for clients. on-going digital transformation and this trend has not
We remain positively disposed to our high growth escaped its major consumer brands. Shiseido is working
internet disruptors and global leading manufacturers closely with IT consultant Accenture to optimise its
alike, believing there to be a long runway of growth digital platform, whilst also training its beauty
ahead. Considerably more attention has been given to consultants to communicate with customers through
durable franchises in recent stock and portfolio digital channels.
discussions, however. This is an area where we have The usual playbook during a global recession is that
added considerable value for clients in the past and where durable businesses with high market shares and franchise
we are beginning to generate a healthy flow of new ideas characteristics fare better and this is reflected in share
at the current juncture. What has driven this change? price performance. Indeed, this was the case when we
First, burgeoning Chinese wealth has transformed the endured the Lehman crisis in 2008, the taper tantrum in
potential opportunity available for a number of Japanese 2015 and the Chinese equities sell a few years later. This
consumer franchises. Whilst the Japanese domestic past year has been very different, however. With
market may only offer low single-digit growth, China’s everyone confined to their homes and social distancing
burgeoning middle class has an insatiable appetite for measures operating across the world, internet platforms
high quality, premium Japanese goods as a result of of all favours have flourished, whilst manufacturers and
cultural similarities and geographical proximity. This is retailers of goods and services that are dependent on
most evident in skincare, where brands such as Shiseido’s more traditional sales channels have suffered. With
Clé de Peau Beauté and Elixir are held in high regard and curtailments operating across all forms of social activity
enjoying profitable growth. Indeed in 2020 most of areas such as skin care and cosmetics have not featured
Shiseido’s profits were generated in China alone. highly on most peoples’ shopping list. Similarly, footfall
Manufacturer of personal care and sanitary products in restaurants and bars has plummeted. In past recessions
Unicharm (which was purchased for the portfolio earlier business serving these areas would have held up better
this year) is also benefitting from rising wealth in China, than most; this time has been different.
with high margin incontinence and feminine careCommentary 04
© SOPA Images Limited Alamy Stock Photo.
This has resulted in a third dynamic: many consumer command the valuation premium that they deserve.
franchises with durable growth prospects have seen their We are hopeful that this combination of growth and
profits and share prices fall precipitously and now rerating
command their lowest valuations in many years. Even will deliver the upside that we look for in our
though the world is now opening up and there are clear investments, as well as providing the portfolio with
signs of a recovery in economic activity, these franchises greater resilience. Just like iconic sports stars, great
appear to have been overlooked so far, with investors companies can persist through challenging times,
allocating funds to lower quality cyclicals to benefit from constantly improve and continue to deliver for many
normalisation after Covid. Shiseido has given up many of years.
its gains from past periods and Unicharm has also been
out of favour, despite some encouraging operational The views expressed reflect the personal opinion of
performance and an increased focus on higher margin the author and should not be considered as advice or a
segments such as feminine care. We believe that all these recommendation to buy, sell or hold a particular
businesses will enjoy a snap back in earnings as the investment.
world returns to normal, whilst at the same time they will
deliver profitable earnings growth for many years to
come in a variety of conditions, perhaps with the
exception of another global pandemic.
We adopt an open-minded approach to growth
investing with no preconceptions as to where growth
might come from and what form it may take. When we
look out five years into the future it seems likely that
many of Asia’s leading consumer franchises will have
rediscovered their mojo and in doing so will once againPerformance - US Dollar 05
Performance Objective
+2% p.a. over 5 years, gross of fees vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 0.7 1.4 -0.6
YTD* 1.5 4.0 -2.5
1 Year* 31.0 28.1 2.8
3 Years 11.9 7.9 4.0
5 Years 14.3 10.6 3.7
10 Years 9.8 6.8 3.0
Since Inception 10.5 7.1 3.4
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 31 August 2009.
Figures may not sum due to rounding.
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
US dollars
Discrete Performance
30/06/16- 30/06/17- 30/06/19- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 18.1 17.8 -1.4 8.4 31.0
Benchmark (%) 19.6 10.2 0.1 -2.1 28.1
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
US dollarsPerformance - Euro 06
Performance Objective
+2% p.a. over 5 years, gross of fees vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -0.2 0.5 -0.6
YTD* 4.8 7.3 -2.6
1 Year* 24.0 21.3 2.7
3 Years 11.3 7.3 4.0
5 Years 12.8 9.2 3.6
10 Years 12.1 9.0 3.1
Since Inception 12.3 8.9 3.5
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 31 August 2009.
Figures may not sum due to rounding.
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
euro
Discrete Performance
30/06/16- 30/06/17- 30/06/19- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 15.0 15.0 1.1 9.9 24.0
Benchmark (%) 16.5 7.6 2.6 -0.7 21.3
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
euroPerformance - Sterling 07
Performance Objective
+2% p.a. over 5 years, gross of fees vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 0.6 1.2 -0.6
YTD* 0.5 2.9 -2.5
1 Year* 17.1 14.6 2.5
3 Years 10.2 6.3 3.9
5 Years 13.5 9.9 3.6
10 Years 11.5 8.4 3.0
Since Inception 12.1 8.6 3.4
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 31 August 2009.
Figures may not sum due to rounding.
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
sterling
Discrete Performance
30/06/16- 30/06/17- 30/06/19- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 21.6 15.9 2.3 11.7 17.1
Benchmark (%) 23.1 8.4 3.9 0.8 14.6
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
sterlingPerformance – Canadian Dollar 08
Performance Objective
+2% p.a. over 5 years, gross of fees vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* -0.8 -0.1 -0.6
YTD* -1.3 1.1 -2.4
1 Year* 19.1 16.5 2.6
3 Years 9.6 5.7 3.9
5 Years 13.2 9.6 3.6
10 Years 12.6 9.5 3.1
Since Inception 11.6 8.2 3.4
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 31 August 2009.
Figures may not sum due to rounding.
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
Canadian dollars
Discrete Performance
30/06/16- 30/06/17- 30/06/19- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 18.1 19.3 -2.1 13.0 19.1
Benchmark (%) 19.6 11.6 -0.5 2.0 16.5
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
Canadian dollarsPerformance – Australian Dollar 09
Performance Objective
+2% p.a. over 5 years, gross of fees vs benchmark.
The performance objective stated is in no way guaranteed. The performance target is aspirational and is
not used for the purpose of determining or constraining the composition of the portfolio. Performance
may vary between segregated accounts and pooled funds in different jurisdictions as each structure will
bear a different set of costs. A single performance target may not be appropriate for all vehicles in all
jurisdictions and for this reason our portfolio specific materials will often refer to ‘material’ outperformance
of a benchmark.
Periodic Performance
Composite Net (%) Benchmark (%) Difference (%)
3 Months* 2.2 2.8 -0.6
YTD* 4.4 6.9 -2.6
1 Year* 20.1 17.5 2.6
3 Years 11.3 7.3 4.0
5 Years 14.1 10.4 3.6
10 Years 13.8 10.7 3.1
Since Inception 11.6 8.2 3.4
Annualised periods ended 30 June 2021. *Not annualised.
Inception date: 31 August 2009.
Figures may not sum due to rounding.
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
Australian dollars
Discrete Performance
30/06/16- 30/06/17- 30/06/19- 30/06/19- 30/06/20-
30/06/17 30/06/18 30/06/19 30/06/20 30/06/21
Composite Net (%) 14.6 22.2 3.8 10.5 20.1
Benchmark (%) 16.1 14.4 5.4 -0.2 17.5
Benchmark is MSCI Pacific Index.
Source: StatPro, MSCI.
Australian dollarsPerformance – Attribution 10 Stock Level Attribution Top and Bottom Ten Contributors to Relative Performance Quarter to 30 June 2021 One Year to 30 June 2021 Stock Name Contribution (%) Stock Name Contribution (%) Tsingtao Brewery 'H' 0.4 Washington Soul Pattinson 0.9 CyberAgent Inc 0.3 James Hardie Industries 0.7 Shiseido 0.3 Techtronic Industries 0.7 James Hardie Industries 0.2 CyberAgent Inc 0.6 Daiichi Sankyo Company 0.2 SEEK 0.5 Cochlear 0.2 XERO (AU) 0.4 SEEK 0.2 Daiichi Sankyo Company 0.4 REA Group 0.2 Denso 0.4 Sony 0.2 REA Group 0.4 Misumi 0.2 Nidec 0.3 SoftBank Group -0.5 Pigeon -0.9 Pigeon -0.4 Olympus -0.7 SBI Holdings -0.4 TPG Telecom -0.5 Toyota Motor -0.3 Commonwealth Bank of Australia -0.5 Galaxy Entertainment Group -0.3 Sugi Holdings -0.4 Sugi Holdings -0.3 Toyota Motor -0.3 Commonwealth Bank of Australia -0.2 Shiseido -0.3 Ryman Healthcare Ltd -0.2 SBI Holdings -0.3 Hitachi -0.2 MS&AD Insurance -0.3 Olympus -0.2 Tokyo Electron -0.3 Source: StatPro, MSCI. Developed Asia inc Japan composite relative to MSCI Pacific Index. Some stocks may have only been held for part of the period.
Portfolio Overview 11
Top Ten Largest Holdings
Stock Name Description of Business % of Portfolio
Baillie Gifford Japanese Smaller Cos
Japanese smaller companies investment fund 7.2
Fund
SoftBank Group Telecom operator and technology investor 4.0
Shiseido Japanese cosmetics manufacturer 3.9
Hong Kong Exchanges & Clearing Stock exchange operator 3.5
SMC Producer of factory automation equipment 3.4
Olympus Optoelectronic products 3.3
Shimano Cycling component manufacturer 3.2
United Overseas Bank Singaporean commercial bank 2.9
Recruit Holdings Property, lifestyle and HR media 2.8
WHSP Investment holding company 2.8
Total 36.9
Sector Weights (%)
9 1 Industrials 17.5
1
8 2 Communication Services 15.6
3 Consumer Staples 14.4
7
4 Financials 13.5
5 Consumer Discretionary 9.5
6 2
6 Health Care 8.1
7 Baillie Gifford Pooled Funds 7.2
5 8 Information Technology 5.7
9 Materials 4.8
3
4 10 Energy 2.8
11 Cash 0.9
Geographical Location Weights (%)
4 1 Japan 62.5
2 Hong Kong 14.7
3 3 Australia 14.2
4 Singapore 4.2
5 New Zealand 3.0
6 Thailand 0.5
2 7 Cash 0.9
1
Totals may not sum due to rounding.Governance Summary 12 Voting Activity Votes Cast in Favour Votes Cast Against Votes Abstained/Withheld Companies 26 Companies 2 Companies 3 Resolutions 290 Resolutions 4 Resolutions 4 In 1948, the United Nations Universal Declaration of Human Rights was the first rights declaration that explicitly applied to everyone, regardless of race, gender, economic circumstance and beliefs. It is as relevant as ever today We engage with our holdings on business and human rights issues, encouraging management teams to understand the growing expectations on their businesses and support the protection of human rights within their sphere of influence A lot of work is discretely going into improving human rights standards across international business and supply chains, much taking place under initiatives such as the UN Global Compact, to which we are a long-standing signatory Company Engagement Engagement Type Company Corporate Governance SoftBank Group Corp. Environmental/Social BHP Group AGM or EGM Proposals Nintendo Co., Ltd., Sysmex Corporation Notes on company engagements highlighted in blue can be found in this report. Notes on other company engagements are available on request.
Governance Summary 13
Rights, responsibilities and sustainable returns Many centuries later, the adoption of the Universal
Declaration of Human Rights by the United Nations
The oldest known bill of rights is thought by many General Assembly on 10 December 1948 was the final
historians to be the Cyrus Cylinder. Following the act in one of the most remarkable achievements in human
conquest of the City of Babylon by the armies of Cyrus history. Out of the ashes of the second world war, an
the Great, the first king of ancient Persia, Cyrus international committee headed by the charismatic and
apparently freed the slaves, declared that all people had dynamic former US First Lady Eleanor Roosevelt and
the right to choose their own religion and established Vice Chair PC Chang of China managed to draft a
racial equality. These and other decrees were recorded on ‘universal bill of rights’ that was endorsed by almost
a baked-clay cylinder in the Akkadian language with every country in the world (there were a small number of
cuneiform script. abstentions).
Recognising this ancient object, now residing in the Before then, there had been a number of hugely
British Museum, as the world’s first charter of human significant milestones towards universal rights such as
rights, the script has been translated into all official the Magna Carta (1215), the French Declaration of the
languages of the United Nations and its provisions Rights of Man and of the Citizen (1789), and the US Bill
parallel the first four Articles of the 1948 Universal of Rights (1791), but there had never before been a
Declaration of Human Rights. declaration of rights that explicitly applied to everyone,
regardless of race, gender, economic circumstance and
beliefs.
Members of the United Nations Commission on Human Rights rehearsing in the Delegates Lounge for a television show You and Human Rights.
Left to right are: Professor Rene Cassin, France; Dr PC Chang, China; Quincy Howe, CBS (Columbia Broadcasting Service), moderator; Mrs Eleanor Roosevelt, US,
Commission Chairman; Dr Charles Malik, Lebanon, and Mr E Kelen of UN Radio Division.
© United Nations. https://www.flickr.com/photos/un_photo/37464345502/in/album-72157677599327615/Governance Summary 14
Despite being over 70-years-old today, the Universal From this relatively recent, tentative start, human
Declaration is still the foundation for all international rights awareness, and many accompanying dilemmas, are
human rights law, and the fundamental rights that it sets now everywhere in business, not least because of the role
out are as relevant as ever. One of the reasons for the of social media and increasing NGO and employee
Declaration’s ongoing significance and longevity is the activism in holding companies to account. The resulting
principle of ‘universalism’ that runs through the reputational risk from the mishandling of human rights
document. At the insistence of Vice Chair PC Chang, the issues is ensuring that the ‘s in esg’ – social – is rapidly
Chinese diplomat, philosopher and playwright whose reaching parity with the environmental (‘e’) and
membership of the drafting committee was of pivotal governance (‘g’) issues in terms of commercial
importance, there was no direct mention of any specific importance. Whether this is considered by all to be
religion with respect to the principles, only freedom of appropriate or not, many businesses have learned the hard
religion as a right. This ensured that the principles in the way that stakeholder expectations have changed beyond
Declaration were articulated as natural, inalienable rights all recognition from the Milton Friedman thesis that the
that could not be arbitrarily revoked by monarchs, clerics sole responsibility of the corporation was to make money
or politicians. for shareholders.
While this brief history of rights is of innate academic In the past few years alone, Rio Tinto’s Chief
interest, human rights is a topic of rapidly growing Executive Jean-Sébastien Jacques was forced to resign
currency and importance in investment management and after a number of aboriginal cultural sites were destroyed
the wider business community. during the company’s mining operations; numerous
Until relatively recently, the responsibility for fashion companies have been publicly named and shamed
protecting human rights fell on sovereign states, for allegedly having forced labour in their supply chains;
supported by a number of international agencies and non- companies providing products or services linked to
governmental organisations (NGO). However following detention centres in the US and China have found
several high profile incidents in the latter 20th century, themselves in the cross-hairs of campaign groups around
not least the perceived lack of intervention by oil and the world; and corporations have been accused of being
gas companies during the trial and execution of Nigerian tacitly ‘part of the problem’ in the lack of progress in
community activist and environmental protestor improving the human rights and economic empowerment
Ken Saro-Wiwa in 1995, the United Nations became of black, minority and first nation citizens in a number of
increasingly interested in the role that businesses could countries.
play in supporting the protection of human rights. This While many people tend to think of issues as modern
culminated in human rights being specifically included in slavery and discrimination against minority groups when
the United Nations Global Compact, launched in 2000 as they think of human rights in the economy, there are also
a framework for socially responsible business operations, a range of evolving areas where different conceptions of
embodied in the first two of 10 principles: employee and consumer rights are coming to the fore.
“Businesses should support and respect the protection These include the right to digital privacy, gender and
of internationally proclaimed human rights (Principle identity rights in the workplace and the right to safer
One); and businesses should make sure that they are not working conditions for all, the latter starkly highlighted
complicit in human rights abuses (Principle Two)”. by some of the inequalities of the pandemic. Human
rights are also increasingly relevant to discussions on the
This was followed up by the much more detailed
best way to ‘net-zero’ emissions, taking account of issues
United Nations Guiding Principles on Business and
such as the economic rights of workers in the fossil fuel
Human Rights, endorsed in 2011. More recently, many
industry during a ‘just transition’ and the right to
businesses have also recognised the role that they can
protection from the adverse physical impacts of climate
play in supporting the achievement of the UN Sustainable
change. Technology platforms are also grappling with the
Development Goals, particularly with respect to basic
at times competing rights of free speech on one hand and
universal needs such as primary healthcare, nutrition and
a content stewardship duty of care towards protected
sanitation.
characteristics groups and vulnerable users online.Governance Summary 15
For all of the above reasons, we are engaging with our
holdings on business and human rights issues, supported
by additional research in this area being undertaken by
the Baillie Gifford Governance and Sustainability Team
and a newly established Investment Human Rights
Research Group. We encourage all management teams to
understand the growing expectations on their business to
understand their obligations and support the protection of
human rights within their sphere of influence.
Our experience to date is that the ambitious,
innovative and growth-oriented kinds of companies that
we aim to hold typically have no interest whatsoever in
being even remotely connected to human rights abuses,
and are often passionate to do what they can to support
progress in this area. While it can be hard (and at times
counter-productive) to take bold public positions in
highly sensitive areas, very considerable amounts of
thought and commitment are discretely going into
improving human rights standards across international
business and supply chains, much of this taking place
under the auspices of invaluable initiatives such as the
UN Global Compact, to which we are a long-standing
signatory.
Human rights are at their most difficult and
contentious when countries at different stages of
development place differing emphasis on the trade-offs
between individual rights and collective national security
or economic development goals. Investors and companies
alike are nevertheless still expected to be positive
advocates for human rights in these circumstances, or at
the very least not complicit in abuses, even though most
rightly understand the limitations of their sphere of
influence and the very significant risks from missteps in
this arena. For our part, we will report back on our work
in this critically important and rapidly evolving area in
our client and regular investment stewardship reporting.Governance Engagement 16
Company Engagement Report
BHP Group We spoke with Chairman Ken MacKenzie about cultural heritage, climate change and
board governance. Mr MacKenzie outlined a continuous improvement programme to
ensure strong stakeholder relationships with Traditional Owners and indigenous
populations across BHP's operations. To this end, the company established a dedicated
Heritage Council, consisting of BHP, indigenous community representatives and other
relevant stakeholders to support better oversight, management and understanding of mine
sites at its South Flank operations. The Chairman outlined BHP's intention to lead the
industry in this area. While it is wholly supportive of new legislation to protect Traditional
Owner rights, the company reaffirmed its intention to operate responsibly, implementing
practices which exceed legal or industry requirements. With regards to climate change,
MacKenzie explained that the board believes BHP is a more valuable business as the
world decarbonises, with most demand for its metals seen at the most ambitious warming
scenario of 1.5-degrees. However, while the company has set strong reduction targets for
its operational emissions, we think the company can do more to address its material scope
three emissions which make up approximately 95 per cent of its footprint. In future
discussions we will continue to push the company to support customer efforts to
decarbonise the downstream component of BHP's value chain.
Nintendo Co., Ltd. We had a call with the investor relations team of Nintendo to discuss their forthcoming
annual general meeting, in particular the election of a new director, Chris Meledandri. Mr
Meledandri is the CEO of Illumination Entertainment and will be the first non-Japanese
member of Nintendo's board. During the call we also discussed broader topics around
Nintendo's unique culture. Nintendo are keenly aware of the importance of their creative
talent, but also that they do not want to cultivate a 'star developer' atmosphere. They give
their developers as much freedom as possible to experiment and ensure that everyone has
a certain amount of 'idle time', which is quite unusual in Japan. They are particularly
conscious of the need to insulate their developers from external scrutiny, so that they
continue to take risks in their creative process. This is getting harder with the rise of social
media and, unlike when Nintendo first started making games, increasingly customers
expect to have direct access to developers.
SoftBank Group Corp. We had a call with Yoko Dochi, Head of Investor Relations for Softbank Group. During the
call we discussed Softbank's share buyback programme - the largest in Japan's history;
board refreshment; and their evolving views of ESG. New non-executive director Keiko
Erikawa brings extensive experience from tech and gaming, but - perhaps more
importantly with the recent changes to the board - also brings an entrepreneurial skillset
that we feel is particularly important for Softbank. They recently appointed their CFO as
their chief sustainability officer and are in the process of integrating ESG considerations
into their internal functions. Particular attention is being paid to how best to integrate ESG
factors into the investment activities of the two Vision Funds. The challenge for Softbank is
the tension between bringing more rigour and process to their activities while maintaining
the dynamism that is fundamental to their continued success.Voting 17
Votes Cast in Favour
Companies Voting Rationale
AIA Group, Denso, FANUC, Galaxy Entertainment Group, We voted in favour of routine proposals at the aforementioned
Hong Kong Exchanges & Clearing, Jardine Matheson, meeting(s).
Kakaku.com, Keyence, MS&AD Insurance, Makita
Corporation, Misumi, Murata, Nidec, Nintendo, Olympus,
Recruit Holdings, SBI Holdings, SMC, SoftBank Group,
Sugi Holdings, Suzuki Motor Corp, Sysmex Corp,
Techtronic Industries, Tencent, Tsingtao Brewery 'H',
United Overseas Bank
Votes Cast Against
Company Meeting Details Resolution(s) Voting Rationale
Galaxy Entertainment Group AGM 4.2, 4.3 We opposed two resolutions which sought
13/05/21 authority to issue equity because the potential
dilution levels are not in the interests of
shareholders.
Galaxy Entertainment Group AGM 5 We opposed the Share Option Scheme due to poor
13/05/21 disclosure, and the potential conflict of having the
plan administrators eligible to participate in the
plan. In addition we felt the level of dilution was not
in the interests of shareholders.
Makita Corporation AGM 2 We opposed the resolution proposing various
25/06/21 amendments to the Articles of Association. Whilst
we were supportive of the majority of amendments
including a move to a one-tier board structure, we
were not supportive of the amendment to abolish
the shareholders vote on the dividend payment.
Votes Abstained
Company Meeting Details Resolution(s) Voting Rationale
Keyence AGM 2.2 We abstained on the election of the chair as we
11/06/21 believe the company's capital strategy is not in the
interests of shareholders.
Companies Voting Rationale
Keyence, Makita Corporation, Misumi We abstained on the low dividend payment as we believe the
company's capital strategy is not in the interests of shareholders.
Votes Withheld
We did not withhold on any resolutions during the period.Transaction Notes 18
New Purchases
Stock Name Transaction Rationale
iFAST Corp iFast is a Singaporean online investment management platform used by independent financial
advisers (IFAs) and DIY investors mainly for investing in unit trusts. iFast is the only truly
independent investment management platform in Singapore, Hong Kong, and Malaysia, which is
not owned by incumbent players. We believe iFast will see an increase in its Singapore assets
under management (AUM) as the IFA and self-directed investment segments take share from
the traditional channels of banks and insurance companies. Beyond benefiting from this shift in
customer behaviour we think iFast has three large growth opportunities. First, iFast is expanding
from its domestic market of Singapore into Hong Kong, a similar size market to Singapore
regarding AUM. Second, iFast is broadening its offering from unit trusts to other asset classes.
Finally, using its technological capabilities, the company can build platforms for other financial
companies in the industry. We believe iFast is led by a long-term and visionary management
team capable of executing the above-mentioned opportunities and that the current share price
does not take account of this attractive combination.
Kobe Bussan Co Ltd Kobe Bussan is a Japanese discount supermarket operator. We believe that its combination of
differentiated brand, cost competitive offering (a function of scale and targeted vertical
integration) and its track record of rolling out new stores, positions the company well for
profitable growth over many years. The company continues to be run by the founding family
which creates strong alignment with minority shareholders. We believe the current share price
does not reflect these promising prospects and have therefore decided to take a holding for the
portfolio.
Z Holdings Corp Z Holdings is the company formed from the merger of Yahoo Japan (one of Japan's leading
online media and ecommerce businesses) and Line (the dominant online messaging platform in
Japan). It also has a stake in Paypay, the leading emoney platform in Japan. We believe that
there are significant benefits to be realised from combining these businesses and that they have
the potential to be much larger in the future as the shift to online activity continues and as
growth synergies are realised. The company is facing some years of heavy spending as it
invests in future growth and we believe the market is failing to take account of what could result
in the long term. As a result, we believe we are being given the opportunity to invest at a very
attractive price.
There were no complete sales during the period.Legal Notices 19
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