Deutsche Bank Markets Research

Japan Synthetic Equity & Index Strategy Date 15 May 2014 Japan Indices

Contributors Land of the Rising Equity Allocation Shan Lan Strategist (+852) 22036716 [email protected] A closer look at new indices adopted by GPIF Will Stephens Major asset allocation changes in Japanese pension funds are in sight Strategist Japan is the second largest country in the world in terms of pension fund (+852) 22036719 assets, following the US. Major Japanese pension funds including GPIF [email protected] (Government Pension Investment Fund) are facing mounting pressure to boost returns as pension payouts for the world’s oldest population swell and Prime Minister Shinzo Abe and the Bank of Japan seek to spur price gains. GPIF plans to complete its new five-yearly plan by June of this year. Based on the recommendations from the various committee members made public, significant changes in asset allocation are expected, including increasing allocation to equity by reducing the bond weighting in the portfolio. Pension fund allocations may provide a catalyst after weakness YTD We estimate there could be significant new money injected into the domestic equity market, ranging from $50 bn to over $100 bn. We believe this has the potential to provide positive support for Japan’s equity market, following a disappointing start to the year. New domestic benchmarks: more diversified and spotlight on smart beta GPIF recently announced that it will adjust some of its current equity allocation partially out of traditional passive (Topix) and active investments towards smart beta allocations (S&P GIVI Japan, Nomura Rafi and MSCI Japan Small Cap) and additional indices for passive investments including the recently introduced Nikkei 400. Globally, 2013 saw the rise of smart beta indices which bridge the gap between active and passive index management styles. We see the adoption of smart beta and increased focus on shareholder returns as a significant long-term positive for the Japanese equity markets. Nikkei 400 – shareholder return a positive, but still quite similar profile to Topix The Nikkei 400 and its focus on shareholder returns have garnered significant attention. We believe it will be a much easier index for investors to replicate relative to the Topix, and should provide a simple transition, given its similar return profile and high correlation (99.8%) to the Topix. The upcoming introduction of futures should spur further acceptance of the Nikkei 400.

We find that the impact of the increased focus on ROE in the Nikkei 400 is partially offset by its backward looking mechanism, market cap weighting and high level of diversification, resulting in it having very similar performance and fundamental characteristics to other broad indices such as the Topix and MSCI Japan. That said, we believe the Nikkei 400 and the increasingly proactive approach of Japanese pension funds should act as longer-term catalysts for renewed focus on motivating corporate Japan to deliver shareholder returns.

______Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MCI (P) 148/04/2014.

15 May 2014 Japan Indices

Table Of Contents

Potential Asset Allocation Changes in Japanese Pension Funds .. 3 Major asset allocation changes are in sight ...... 3 New Domestic Equity Benchmarks: more diversified and spotlight on smart beta ...... 7 New asset allocation could potentially inject over $100 bn to domestic equity market ... 8 Equity allocations may act as a positive catalyst ...... 10 Recent trends in Smart Beta investments...... 13 Benchmark Comparison ...... 15 A glimpse at the new benchmarks ...... 15 Cross-index Performance ...... 19 A Closer Look ...... 23 Nikkei 400 ...... 23 Russell Nomura Prime ...... 26 S&P GIVI Japan ...... 29 RAFI ...... 31 Topix ...... 34 MSCI Japan ...... 36 MSCI Japan Small Cap ...... 38 Listed Products tracking these indices ...... 41 List of ETFs tracking these indices ...... 42

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Potential Asset Allocation Changes in Japanese Pension Funds

Japan is the second largest country in the world in terms of pension fund assets, following the US. According to the Towers Watson’s survey, Japanese pension funds hold about $2 trillion assets in 2012, which represents 14.7% of the total pension assets of the top 300 funds in the world. Japan’s Government Pension Investment Fund (GPIF) is the world’s largest pension fund with ¥128.58 trillion (US$1.25 trillion) in assets as of end of December 2013.

Figure 1: Country Breakdown of the World Pension Figure 2: Top 20 Pension Funds Assets1 Total Assets Rank Fund Market ($mn)1 1 Government Pension Investment Japan 1,292,003 Brazil 1.0% Finland 1.2% 2 Government Pension Fund Norway 712,606 3 ABP Netherlands 372,860 Switzerland 4 National Pension South Korea 368,450 1.7% Other 11.6% 5 Federal Retirement Thrift US 325,682 Germany 1.9% 6 California Public Employees US 244,754 Sweden 2.1% 7 Local Government Officials2 Japan 201,443 US 35.0% Denmark 2.2% 8 Central Provident Fund Singapore 188,430 9 Canada Pension2 Canada 184,425 South Korea 10 National Social Security China 177,486 2.7% 11 PFZW2 Netherlands 177,311 Australia 3.4% 12 Employees Provident Fund Malaysia 175,720

Norway 5.1% 13 California State Teachers US 155,739 14 New York State Common US 150,110 UK 5.2% 15 Florida State Board US 134,345 Canada 5.5% Japan 14.7% 16 New York City Retirement US 132,071 17 Ontario Teachers Canada 130,198 Netherlands 6.6% 18 ATP Denmark 129,009 19 GEPF3 South Africa 122,225 20 Pension Fund Association Japan 119,199 1 As of 31 Dec 2012, 2 As of 31 Mar 2013, 3 As of 31 Mar 2012 Source: Deutsche Bank, Towers Watson, Data as of Dec 2012

Major asset allocation changes are in sight

Japanese pension funds have undergone reforms from various perspectives, but comprehensive review and profound reforms have yet to be implemented. Overall, the investment strategy of these pension funds is very conservative when compared with their peers in North America and Europe.

Major Japanese pension funds, including GPIF, are facing mounting pressure to boost returns as pension payouts for the world’s oldest population swell and Prime Minister Shinzo Abe and the Bank of Japan seek to spur market performance. GPIF reform is a key element in Abe’s growth strategy. It is becoming part of the so-called “third arrow” of Abenomics, following aggressive monetary and fiscal stimulus. Recently, GPIF has made a series of changes in investment strategy to diversify its assets and reduce its reliance on low-yielding domestic bonds.

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Figure 3: 2007-2012 Annualized Growth of Assets of Top 20 Funds (Split by fund domicile – in local currency)

China 16.5%

Norway 14.4%

South Korea 12.5%

Malaysia 11.4%

Denmark 11.1%

Singapore 11.0%

South Africa 7.8%

Netherlands 6.5%

Canada 2.4%

U.S. 0.9% Japan -1.2%

-2.0% 1.0% 4.0% 7.0% 10.0% 13.0% 16.0%

Source: Deutsche Bank, Towers Watson

Figure 4: Asset Allocation Comparison (Average of Top 20 Funds vs GPIF)

70%

60% GPIF 50% Top 20 funds - Weighted Avg 40% Top 20 funds - Simple Avg 30%

20%

10%

0% Equities Bonds Alternatives & Cash

Source: Deutsche Bank, Towers Watson, data as of 2012, GPIF, data as of Dec 2013

Last year, a reform panel (The Panel for Sophisticating the Management of Public/Quasi-public Funds) was established under the minister in charge of economic revitalization pursuant to the “Japan revitalization strategy” which was formulated as part of Abe’s growth strategy (the third arrow”). This 7-member panel, led by Takatoshi Ito, the dean of the graduate school of Public Policy at Tokyo University, recommended a number of changes in its final report published in November 20131.

1 “Final Report”, Panel for Sophisticating the Management of Public/Quasi-public Funds, November 2013

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Highlights include:

„ Wage / price inflation linkage: Since benefits paid out from some funds are linked to nominal wage growth rate and inflation rates, it is reasonable to set investment return targets as specific rates above the nominal wage growth rate or inflation rates.

„ Reduce bond weighting: Present investment portfolios of public and quasi- public funds that invest heavily in domestic bonds need to be revised to improve returns and hold down interest rate risks.

„ Increase exposure to alternatives: Under a long-term outlook on benefits and contributions in pension finance, GPIF and the like should diversify investments by investing in new types of assets (including real estate investment trusts, real estate, infrastructure, venture capital, private equity and commodities).

„ Increase active management: Currently, the ratio of active investments is generally low. GPIF, for example, has only about 20 percent of its domestic equity in actively managed portfolios. Consideration should be made to increase the ratio of active investments, depending on the size and characteristics of each fund. - Less reliance on the Topix: As a benchmark for passive investments in stocks, many funds track the Topix index. Funds should consider improvements including tolerating some deviation from the index or using other indexes that enable more efficient investment.

„ Risk management and governance: The panel also recommended implementing new risk management measures and a better governance structure over the medium term. It also recommended reestablishing the fund as new type of legal entity. In the same report, the reform panel outlined a roadmap for the reform of GPIF and addressed the improvements to be made across three timelines: 1) immediately, 2) in approximately one year, and 3) after legal revision has been completed.

Issues to be addressed immediately include

„ Revise investments within the current policy asset mix (flexible investment using the permissible range of deviation, reviewing active investment)

„ Consider investment return targets and degree of risk tolerance

„ Consider the use of new benchmarks in passive investments Issues to be addressed in about one year include:

„ Decide on a new policy asset mix based on the results of the reexamination of pension finance

„ Invest in new types of assets (mainly in liquid assets and assets that can be evaluated without difficulty)

„ Establish “baby” funds for more flexible deployment of capital Since the release of this report, the GPIF has taken actions dealing with the above mentioned issues that need to be addressed immediately. The domestic bond allocation has decreased from 58% to 55.2%, and the domestic stock allocation increased about 1%, from 16.2% to 17.2%. The international stock allocation has increased from 13.5% to 15.2%. As of Dec. 31, GPIF had 65.8% of its assets in domestic bonds and 10.6% in offshore debt. The total equity allocation is about 32.4%

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with international stocks representing 15% of the total assets. Please see Figure 5 below for a more detailed overview of their asset allocation.

Takatoshi Ito, head of the reform panel, said in an interview in February 2 that GPIF should put 50% its assets in stocks and increase its yearly return goal to 5 percent. Members of the advisory group also recommended adding new assets such as real- estate trusts, infrastructure and private-equity investments and commodities.

It is reported that GPIF said on Feb. 28 that it will put as much as $2.7 billion in infrastructure investments over the next five years, in partnership with Development Bank of Japan Inc. and Ontario Municipal Employees Retirement System 3.

Another important committee that has significant influence over GPIF’s asset allocation and operations is the Investment Advisory Committee (IAC), appointed by the Ministry of Health, Labour, and Welfare (“MHLW”). It monitors the implementation of GPIF’s polices and advises the president. On April 22, the MHLW announced a reshuffle of the investment committee. Keio University professor Yasuhiro Yonezawa will be the head of the committee, and three members from the above mentioned advisory group, who spearheaded changes in the fund’s strategy to achieve higher return, will also join the committee. The committee members will be reduced to 8, and only two of the 10 previous members will stay on the committee. The new committee will play a leading role in setting GPIF’s new investment allocation expected to be released in June.

There is also a 21-member government appointed advisory group including 6 IAC members, helping the MHLW conduct a 5-yearly review of GPIF’s basic portfolio. This year is the final year of the most recent 5-year mid-term plan. Major changes in asset allocation are expected with the introduction of the new mid-term plan. The transition will not happen in one day and we expect its impact should be gradual and last for some time. The new recommendations on the asset allocation are likely to be formalized by June, while the implementation is likely to begin immediately after the announcement.

2 “Japan’s GPIF Should Own $600 Billion of Stocks”, Anna Kitanaka and Shigeki Nozawa, Bloomberg news, 17-Feb- 2014. 3 “GPIF Shakes Up Committee with Three Abe Panel Members”, Anna Kitanaka and Shigeki Nozawa, Bloomberg news, 22-Apr-2014.

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Figure 5: Current Asset Allocation in GPIF’s Portfolio as of December 2013

Current Alloance Upper Lower Current Market Value Asset Category Target Range (+/-) Bound Bound Allocation (Y billion) Domestic Bonds 60% 8% 68% 52% 55.22% 71,003 International Bonds 11% 5% 16% 6% 10.60% 13,636 Total Bond 71% 65.8% 84,639

Domestic Stocks 12% 6% 18% 6% 17.22% 22,147 International Stocks 12% 5% 17% 7% 15.18% 19,522 Total Stock 24% 32.4% 41,669

Short-term Assets 5% 5% 5% 1.77% 2,271 Total 100.0% 100.0% 128,579

1.77%

15.18%

Domestic Bonds International Bonds

17.22% Domestic Stocks 55.22% International Stocks Short-term Assets

10.60%

Source: Deutsche Bank, GPIF

New Domestic Equity Benchmarks: more diversified and spotlight on smart beta

In April, GPIF altered its domestic stock strategy, and awarded 14 active mandates and 10 passive mandates for its Japanese equities allocations, eight of which had existing mandates from the fund 4. The fund will introduce a performance-based fee structure for active managers. GPIF is also planning active investments in a wider range of foreign bonds. These announced changes are quite consistent with the recommendations from the reform panel, in our view. Highlights of the main changes include:

„ For Passive investments, in addition to Topix, select three new indices: Nikkei 400, MSCI Japan, and Russell Nomura Prime.

„ For Active investment, in addition to the traditional active management, allocate some assets to Smart Beta active management, targeting to effectively capture mid- to long-term excess returns through indexing strategy. This represents the first time GPIF will employ the idea of smart beta.

4 “GPIF’s Selection of Domestic Equity Investment Managers and Revision of Manager Structure”, GPIF, 4-Apr-2014.

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„ For traditional active management, GPIF has selectively chosen managers from a wide range of investment strategies including strategies such as increasing shareholder value via engagement with company management.

Figure 6: Revision of Manager Structure for Domestic Equity Investment

Traditional Active Management Traditional Active Management -MSCI Japan Small Active Active Smart Beta Active -Nomura RAFI Ref Management -S&P GIVI Investments Russell Nomura Prime MSCI Japan Strategy JPX-Nikkei 400 Passive Investments (TOPIX) Indexing

TOPIX Passive InvestmentsPassive

Current New (Potential)

Source: Deutsche Bank, GPIF

New asset allocation could potentially inject over $100 bn to domestic equity market

GPIF plans to complete its new five-yearly plan by June of this year. Based on the recommendations from the various committee members made public, we have analyzed three potential scenarios on GPIF’s new allocations. The purpose of this analysis is not to predict exactly what the new allocation will be, but rather to gauge the magnitude of the potential impact of the upcoming changes.

Scenario 1 assumes a more aggressive move to riskier assets (the allocation to equity will increase from the current 33% to 50%, while bond allocation will decrease from the current 65.8% to 40%). Scenario 3 reflects a more conservative change (Equity weight to increase from 33% to 40%, while bond weight to decrease to 57%). Scenario 2 is in between Scenario 1 and Scenario 3. In addition, we also assume the allocation to other assets including Real Estate and Private Equity to gradually increase from 1% to 5%. Again we are not trying to predict GPIF’s new allocation, but rather to analyze the impact if GPIF shifts assets between asset classes. As we do not expect the reshuffle of GPIF’s asset allocation to be a one-time event, our Scenario 1 can be viewed as a relatively longer-term asset allocation target, while Scenario 3 is more likely to reflect potential near-term changes. We estimate there could be significant new money injected to the domestic equity market ranging from $50 bn to over $100 bn.

The downside is obviously felt in the bond market if GPIF’s exposure to stocks comes at the expense of buying Japanese government bonds. Some have speculated that the Bank of Japan, already a big JGB buyer, may act to fill the void to prevent a precipitous market selloff. The full impact of this major shift in GPIF’s asset allocation could potentially be much larger as other public and private pension funds and life insurers follow suit. As discussed above, Japan has the second largest base of pension assets in the world.

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Besides GPIF, Japan has two other pension funds in the top 20 in the world (Figure 2). In addition, it is reported by Asia Asset Management 5 that Japanese mega trust banks, including Sumitomo Mitsui Trust Bank, Mitsubishi UFJ Trust and Banking, Mizuho Trust and Banking, and Resona Bank, will allocate more investment to equities, while reducing government bond holdings, in order to generate higher returns for clients. Corporate pensions make up approximately half of these accounts, equivalent in aggregate to 36 trillion yen (US$352.27 billion). For fiscal year 2014, which began on April 1, asset allocation for combined domestic and overseas equities has been raised to 58%, an increase of four percentage points. The allocation for foreign stocks will mirror that of local shares, at 29% of holdings.

Figure 7: Potential Asset Allocation Change in GPIF’s Figure 8: Estimated Flows | Scenario 1 | Portfolio | Scenario 1 | Potential weights 5.00% 5.00% Other assets (incl. Infra & Real Estate) Current weights 1.77 % 15.18 % Short-term Assets 35.00%

23.42% 17.22 % 55.22 %

Asset Class Stocks 10.60 %

Bonds 26.58% 5.00%

Domestic Bonds International Bonds (45,000) (30,000) (15,000) - 15,000 30,000 Domestic Stocks International Stocks Potential Flows (¥ billion) Short-term Assets Other assets (incl. Infra & Real Estate) Domestic International Overall Source: Deutsche Bank, GPIF

Figure 9: Potential Asset Allocation Change in GPIF’s Figure 10: Estimated Flows | Scenario 2 | Portfolio | Scenario 2 | Potential weights 3.00% 3.00% Other assets (incl. Infra & Real Estate) Current weights 1.77 1.77% % 15.18 15.18% % Short-term Assets 21.08% 43.00% 17.22 17.22% 55.22 % 55.22% %

10.60 Class Asset Stocks 10.60% % 23.92% Bonds

Domestic Bonds 6.00% International Bonds (30,000) (15,000) - 15,000 30,000 Domestic Stocks International Stocks Potential Flows (¥ billion) Short-term Assets Other assets (incl. Infra & Real Estate) Domestic International Overall Source: Deutsche Bank, GPIF

5 “Japan’s mega trust banks up equities allocation”, Asia Asset Management, 29-Apr-2014

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Figure 11: Potential Asset Allocation Change in GPIF’s Figure 12: Estimated Flows | Scenario 3 | Portfolio | Scenario 3 | Potential weights 2.00% 1.00% Current weights Other assets (incl. Infra & Real Estate) 1.77 % 18.74% 15.18 % Short-term Assets

49.00% 17.22 % 55.22 %

Asset Class Stocks 10.60 21.26% %

Bonds 8.00%

Domestic Bonds International Bonds (30,000) (15,000) - 15,000 30,000 Domestic Stocks International Stocks Potential Flows (¥ billion) Short-term Assets Other assets (incl. Infra & Real Estate) Domestic International Overall Source: Deutsche Bank, GPIF

Equity allocations may act as a positive catalyst

These potential shifts could provide significant support for the market going forward. Japan’s markets have been under pressure year-to-date with the Nikkei 225 and Topix down 11.6% and 9.2% respectively. The Japanese benchmark indices are the worst performing global indices on the year. Concerns around Abenomics’ efficacy, disappointment with the lack of additional measures by the BOJ, the slowdown in Yen weakness and profit taking have weighed on the market in 2014. More recently, increased concerns surrounding the hike in the consumption tax have pressured the Nikkei, resulting in the index re-testing the key 14,000 level.

Figure 13: Nikkei Performance Relative to S&P 500 and MSCI World in JPY Terms

70%

60%

50%

40%

30%

20%

Normalized Returns (%) 10%

0% -13 -13 -13 y y g Jul-13 Jul-13 Apr-13 Apr-14 Apr-14 Oct-13 Jun-13 Jan-13 Jan-14 Mar-13 Mar-13 Mar-14 Feb-13 Feb-14 Feb-14 Nov-13 Au Sep-13 Sep-13 Dec-12 Dec-13 Dec-13 Ma Ma S&P 500 (JPY Terms) MSCI World (JPY Terms) Topix JPX Nikkei 400

Source: Deutsche Bank, Bloomberg Finance LP

We have previously highlighted the potential risks to Japan’s equity markets through this period (“Sell in May? Positioning for Japan’s consumption tax hike”, 26 Mar 14). We feel there can be continued weakness over the immediate term, but believe that any weakness presents a compelling buying opportunity. Deutsche Bank remains positive on the medium- to longer-term outlook for Japan, based on our strong US Dollar thesis and the gains from reform.

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Figure 14: Value Traded on the Tokyo Stock Exchange – last 10 years

60,000

50,000

40,000

30,000

20,000

10,000 Value Traded (US$ mn) - Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 TSE1/TSE2 Daily Value Traded

Source: Deutsche Bank, Bloomberg Finance LP

The timing of this current weak patch is happening at the same time as GPIF’s potential re-allocation in favor of additional domestic equity exposure. We believe that a positive announcement on GPIF’s investment plans could provide a positive catalyst for the markets. While the exact potential buying impact remains uncertain, we believe it should be positive for sentiment, which has been waning in recent months.

The high end of our domestic flow estimate is approximately US$ 100bn. The TSE has seen average daily turnover of approximately US$ 21bn in 2014. While the timing and exact size of any GPIF additional allocation remains uncertain, we believe it should be positive from a flow perspective as well, especially for constituents of the newly proposed benchmarks, such as the Nikkei 400.

Figure 15: Rolling 3m Nikkei / USDJPY correlation – Last 5 years

100% 80% 60% 40% 20% 0% -20% Rolling 3m Correlation (%) Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sep-08 Dec-08 Sep-09 Dec-09 Sep-10 Dec-10 Sep-11 Dec-11 Sep-12 Dec-12 Sep-13 Dec-13 2009 2010 2011 2012 2013 2014 Avg-36.4% Avg-42.4% Avg-17.8% Avg-32.3% Avg-56.9% Avg-46.8%

Source: Deutsche Bank, Bloomberg Finance LP

In addition to providing a general boost in sentiment, the GPIF re-allocation may benefit the following thematic ideas. Currently there is significant uncertainty around the timing and size of any reallocation. These strategies would be more effective if the timing and the size of the allocation are known. Potential themes include:

„ Least liquid stocks. While a US$100bn additional allocation should be readily absorbed by the market given Japan’s $20bn+ daily turnover levels, not all stocks will be impacted equally. Given that the exact split and timing of the upcoming changes remain uncertain, one strategy would be to look at the least liquid stocks in Nikkei 400 and other indices which are receiving allocations as

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an interesting way to play pension re-allocation in Japan. Please see section “A closer look” later in the report for the highest flow impacted names for the Nikkei 400 and other indices.

„ Overlap vs unique constituents. We expect a significant amount of the allocation will go towards the Nikkei 400 and other new indices adopted by GPIF, and we see the indices gaining in significance over time. One strategy would be to look at stocks which are in more than one index. The estimated inflows should be summed up, so we would expect more significant flows than that from any single index. Please see Figure 18 for a comparison of the membership across all indices we discussed in this report. Figure 16 shows the top 20 illiquid stocks that are constituents in all the indices being adopted by GPIF except MSCI Japan small cap. On the other hand, if GPIF reallocates assets from one index to another, for example, moving assets from tracking Topix to tracking Nikkei 400, then those unique constituents in Nikkei 400 but not in Topix would receive more inflows. While these are interesting ideas, we have concerns about the relatively limited liquidity, high concentration in JASDAQ names, and the uncertainty around timing and sizing of any reallocation.

„ Inclusion/exclusion and reweights. The Nikkei 400 and other new indices adopted by GPIF will conduct annual or semi-annual rebalances this year. Looking for potential inclusion/exclusion or even re-weight names, such as those for Nikkei 400 driven by the 3-year ROE calculation may be an interesting trade. Rebalance dynamics for the Nikkei, Topix and MSCI Japan are somewhat well understood by the market at this point, but with the Nikkei 400 being a new index, and S&P GIVI and RAFI as less known indices, some interesting trading opportunities may develop surrounding their rebalances.

Figure 16: Top 20 Illiquid Stocks with overlap in all the indices* Flow Flow $ shares Ticker Name mm mm Days 9042 JP Equity HANKYU HANSHIN HOLDINGS INC 178.22 32.53 19.46 9041 JP Equity KINTETSU CORP 167.62 47.73 14.36 8377 JP Equity HOKUHOKU FINANCIAL GROUP INC 66.45 34.48 14.27 8334 JP Equity GUNMA BANK LTD/THE 60.87 11.46 14.21 9364 JP Equity KAMIGUMI CO LTD 57.77 6.06 14.07 8369 JP Equity BANK OF KYOTO LTD/THE 77.27 9.49 14.01 9001 JP Equity TOBU RAILWAY CO LTD 135.02 27.60 13.50 9008 JP Equity KEIO CORP 96.87 13.70 12.93 9007 JP Equity ODAKYU ELECTRIC RAILWAY CO LTD 134.24 15.30 12.59 8333 JP Equity JOYO BANK LTD/THE 88.70 18.24 11.96 4581 JP Equity TAISHO PHARMACEUTICAL HOLDINGS CO LTD 87.75 1.19 11.74 9022 JP Equity CENTRAL JAPAN RAILWAY CO 540.46 4.41 11.65 9005 JP Equity TOKYU CORP 181.77 28.90 11.56 4088 JP Equity AIR WATER INC 59.53 4.24 11.46 8418 JP Equity YAMAGUCHI FINANCIAL GROUP INC 55.75 6.05 11.09 3382 JP Equity SEVEN & I HOLDINGS CO LTD 795.41 20.17 10.97 2897 JP Equity NISSIN FOODS HOLDINGS CO LTD 97.53 2.04 10.11 7309 JP Equity SHIMANO INC 201.46 2.02 9.96 8766 JP Equity TOKIO MARINE HOLDINGS INC 563.23 19.12 9.95 9020 JP Equity EAST JAPAN RAILWAY CO 668.36 9.17 9.72

*Except MSCI Japan Small Cap and Nikkei 225 Source: Deutsche Bank, Bloomberg Finance LP. N.B. based on AUM assumptions outlined in the “A closer look” section

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Recent trends in Smart Beta investments6.

The past few years have witnessed the rise of alternative or smart beta indices which are bridging the gap between active and passive index management styles. We see the recent adoption of GPIF to include smart beta benchmarks as part of this global trend. Smart beta lacks a precise definition and generally includes any rules-based strategy for equity market exposure that uses a scheme other than the market capitalization of the broad market to determine the index constituents and/or the weightings. These strategies offer alternative beta exposures based upon fundamental factors, technical factors, style factors, different weighting schemes, or any combination thereof. A strategy as simple as an Equal-Weight index is considered smart beta. One of the key attractions of this developing suite of indices is the cost efficiency compared to the management fees of active funds. Cynics may state that “smart beta” is sometimes just used as a clever marketing term; however we believe that if used wisely, these products are a valuable tool in portfolio construction. Smart beta strategies saw massive growth in 2013 as investors sought higher risk- adjusted returns through lower-cost, index products. Around 25% of the ETF inflows in 2013 went to alternative beta products. In a recent survey of institutional investors by Cogent research, over half (53%) of managers intend to increase their allocations to smart beta products in the future.7 We expect this interest in smart beta products to continue to be a significant theme in 2014.

Figure 17: The Growth of Smart Beta ETFs Globally

45,000 40,000 35,000 30,000 25,000 20,000

US$ millions 15,000 10,000 5,000 -

Daily Cumulative Cash Flows

Source: Deutsche Bank, Bloomberg Finance LP, Reuters Data as of 30 April 2014 Smart-Beta ETFs is assumed as all non-market-cap and price based index ETFs

Traditionally investors have used market capitalization indices for relatively low-cost passive exposure to equity markets and paid managers to implement active strategies. Smart beta attempts to blend the best of both worlds by offering rules-based products intended to exploit systematic biases or inefficiencies in the market. Most importantly, these smart beta products are offered at a lower cost than actively managed strategies. Many investors use smart beta strategies packaged in an ETF wrapper, but smart beta strategies can also be traded as index swaps.

6 “Synthesizing Equity in 2014”, Pam Finelli, et. al., 17-Dec-2013 7 “Institutions Favor Smart Beta ETFs”, CME Group, 11-Dec-2013

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While market capitalization-weighted indices are well-diversified and liquid, their implicit bias towards large-cap stocks is sometimes considered less attractive. Market capitalization, a function of price, implicitly over-weights stocks that have been rising and under-weights stocks that have underperformed and may be undervalued. Numerous studies have shown alternative beta strategies have outperformed the market historically over long periods of time. The small-cap and value premiums are classic examples of this. While smart beta strategies have historically outperformed market capitalization strategies on a risk-adjusted basis, this is not always the case over shorter time horizons. Critics of smart beta in fact argue that these strategies are just cleverly marketed ways of taking active positions on small-cap and value. According to James Montier of GMO, "when [smart beta] strategies are corrected for their exposure to 'value' and 'small,' they exhibit no statistically significant outperformance compared to the cap weighted benchmark." Montier continues to note that now is a particularly inconvenient time to use smart beta as "both value and small have very unattractive expected returns in the U.S. on our data."8

8 “No Silver Bullets in investing (just old snake oil in new bottles).” White Paper. GMO. December 2013.

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Benchmark Comparison

A glimpse at the new benchmarks

The following table provides information on the constituent overlap across all the major indices. Broad indices, such as the Topix and the Russell Nomura Prime, have the most overlap with the remaining indices. With its focus on small caps, the MSCI Japan Small Cap Index has the least overlap with other indices as others don’t have specific small cap focus. Additionally, having a relatively small universe, the Nikkei 225 constituents also have lower overlap. The distinct eligibility criterion for some of the indices has resulted in a number of unique constituents to those particular indices which are not part of any other index. These are the S&P GIVI (19), MSCI Japan Small Cap (18) and Russell Nomura Prime (2). Topix also has 558 unique constituents which is a result of its very broad coverage.

Figure 18: Constituents overlap

FTSE Nikkei MSCI MSCI JP Nikkei Unique Constituents Overlap RN Prime S&P GIVI RAFI Topix 400 Japan SC 225 constituents Japan Nikkei 400 400 245 398 291 204 149 388 152 0 MSCI Japan 245 320 314 225 240 0 312 175 0 RN Prime 398 314 999 714 267 650 958 225 2 S&P GIVI 291 225 714 1007 174 615 917 128 19 FTSE RAFI Japan 204 240 267 174 267 26 267 175 0 MSCI JP SC 149 0 650 615 26 875 780 50 18 Topix 388 312 958 917 267 780 1797 225 558 Nikkei 225 152 175 225 128 175 50 225 225 0 Unique constituents 0 0 2 19 0 18 558 0 597

Source: urwqeDeutsche Bank, Bloomberg Finance LP

As we expect the Nikkei 400 is likely to become one of the more followed indices in Japan, we looked to conduct a detailed comparison of it relative to the three other major indices in Japan, the Nikkei 225, the Topix and MSCI Japan. In Figure 19, we summarize many of the key differences between the four indices. We highlight differences in index weight concentration, sector exposure and market cap profile. We also look at the potential ease of trading the new index by assessing how easy it should be to replicate as a cash portfolio, the overall liquidity profile of the index and how difficult it should be to trade the “tail” of the index. We also assess the various futures, options and total return swap options available for each index.

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Figure 19: Japan Major Index comparison Nikkei 400 Nikkei 225 Topix MSCI Japan Constituents 400 225 1797 320 Rebalance Annual (Aug) Annual (Oct) Annual (Oct) Semi-Annual (May/Nov) Quarterly (Feb/Aug)

Concentration Top 5, 10 and 20 constituents Top 5, 10 and 20 constituents Top 5, 10 and 20 constituents Top 5, 10 and 20 constituents account for 8.1, 15.2 and 27.8% account for 25.4, 33.8 and account for 13.0, 19.5 and account for 15.6, 22.9 and of the index. Top name is 46.6% of the index. Top name is 28.8% of the index. Top name is 33.5% of the index. Top name is SoftBank at 1.91% of the index Fast Retailing at 8.7% of the Toyota at 4.7% of the index. Toyota at 5.9% of the index index Overall very diverse given highest number of constituents. Sector Exposure Most diversified sector Most concentrated sector Very diversified. Largest Very diversified. Largest exposure of any of the major exposure of the major indices exposure to Financials, Cons exposure to Consumer indices (lowest standard (highest standard deviation of Disc and Industrials. Lowest Discretionary, Financials and deviation). Largest weighting to exposure). Overweight sector exposure is to Energy. Industrials. Largest exposure to Industrials, followed by Telecoms , IT, healthcare and Overweight Cons Disc (by 2.7%) Financials of any major index at Consumer Discretionary and Consumer Discretionary. Very and underweight Industrials (by 20%. Underweight Industrials Financials. Underweight Cons underweight Financials (-11% 1.9%) relative to the Nikkei 400. and Consumer Staples relative Disc and overweight Indust relative to other major indices). to other indices. relative to other indices Index-Weighted 24,555 26,276 28,879 34,126 Average Market Cap (US$ mn) Market Cap Profile 65.5% and 29.9% of the index 65.2% and 30.6% of the index Largest small-cap bias. 58.8% Most significant large-cap bias. weight is from large cap and weight is form large cap and and 27.2% of the index weight 69.1% and 30.2% of the index mid-cap stocks. Small caps mid-cap stocks. Small caps is from large cap and mid-cap weight is from large cap and account for 4.6% by index account for 4.3% by index stocks. Small and micro caps mid-cap stocks. Small caps weight and 32% by number. weight and 19.6% by number. account for 14% by index account for only 0.6% by index Index-weighted average market Index-weighted average market weight and 80.5% by number. weight and 3.8% by number. cap of US$ 24.5 bn cap of US$ 26.2 bn Index-weighted average market Index-weighted average market cap of US$ 28.9 bn cap of US$ 34.1 bn Index-Weighted 111.5 163.4 124.0 147.2 Average ADV (US$ mn) Liquidity The Nikkei 400 has a mixed The Nikkei 225 has the best The Topix has the worst MSCI Japan has a very good liquidity profile. It has the liquidity profile of the four liquidity profile given the large liquidity profile given its bias lowest overall index weighted indices, due the fact that it has number of stocks and towards larger cap stocks and average liquidity, but the "tail" the least number of stocks and significant exposure to small- very low exposure to small- of the index has superior is top-heavy in very liquid caps. Its overall average ADV is caps. liquidity to the Topix, though stocks superior to the Nikkei 400, but lower than the Nikkei 225 and the tail of the Topix is very the MSCI Japan illiquid, with the last 5% of the index having an average ADV of US$ 1.5mn per day Replication Should be relatively easy to Very easy to replicate, though Very difficult to replicate given Should be relatively easy to replicate, especially relative to large weightings in Fast "long tail" of illiquid small and replicate, especially relative to the Topix. Though the liquidity Retailing and Softbank create micro-caps the Topix of the last 1% of stocks is not basis risk for loose great when compared to the benchmarking. Even the tail of Nikkei 225 and MSCI Japan the index is very liquid with average ADV of US$ 42mn for the last 1% of the index Futures No. Expected to be launched in Yes. Extremely liquid. The main Yes. Not as liquid as the Nikkei, Futures are available on Eurex November Nikkei 225 first contract (NK1) but trades ~US$ 6.9bn per day. but have limited liquidity. trades US$ 10bn+ per day. Relatively high open interest Liquidity can be sourced by Total futures first contracts on dealers the Nikkei trade US$ 22bn+ including minis, SGX and CME. Options No. It has been reported by Risk Liquid listed market and Relatively liquid listed and OTC N/A magazine that a few OTC trades extremely liquid OTC market market, though significantly have gone through smaller than the Nikkei 225 Swaps Liquidity is still nascent Active - often used for hedging Active - often used by local Active - popular among global option books institutions investors Source: Deutsche Bank, Bloomberg Finance LP. N.B. Large cap is defined as having full market cap of greater than US$10bn, followed by mid-cap greater than US$ 2bn, small-cap at greater than US$ 300mn and micro cap less than US$ 300mn.

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JPX Nikkei 400: Benefits of the Topix without the Tail? As highlighted in the previous table, one of the consistent issues with the Topix is its high number of constituents and the fact that the “tail” consists of a large number of relatively illiquid small caps. This can be seen below in the stark difference between the distribution of large-, mid-, and small-caps contribution to index weighting and the total number of constituents across the four major indices. The Nikkei 400, while having a similar correlation profile and slightly superior long-term returns, should be easier to replicate and implement than the Topix. When futures contracts are introduced, which is expected to be in November, it should also be easier to hedge.

Figure 20: Stock Size Distribution – Index Weight Figure 21: Stock Size Distribution – No. of Constituents

100% 100%

80% 80%

60% 60%

40% 40%

20% 20%

0% 0% NKY 400 NKY TPX MXJP NKY 400 NKY TPX MXJP Micro Cap Small Cap Mid Cap Large Cap Micro Cap Small Cap Mid Cap Large Cap

Source: Deutsche Bank, Bloomberg Finance LP. N.B. Large cap is defined as having full market cap of Source: Deutsche Bank, Bloomberg Finance LP. N.B. Large cap is defined as having full market cap of greater than US$10bn, followed by mid-cap greater than US$ 2bn, small-cap at greater than US$ greater than US$10bn, followed by mid-cap greater than US$ 2bn, small-cap at greater than US$ 300mn and micro cap less than US$ 300mn 300mn and micro cap less than US$ 300mn

While the overall index-weighted liquidity profile of the Nikkei 400 is slightly less than the Topix with overall average index weighted ADV of US$ 111.5mn vs. US$ 124.0mn for the Topix, it should be easier to implement given the smaller tail impact. The overall ADV profile of the 4 major indices is shown in Figure 22. Fully replicating the Topix is much more difficult as the liquidity of the tail is much lower. Looking at the stocks which make up the 95% - 99% bucket of the Topix’ index weight, there are 576 stocks to trade, representing the 713th through 1,289th constituent of the index. The weighted average daily turnover of these stocks is US$ 1.7mn. Looking at the last 1% of the Topix, stocks 1,290 through 1,797, the weighted average stock has an ADV of US$ 0.656mn. This can be seen below in Figure 23.

The Nikkei 400 has weighted average ADV of US$ 8.4mn for the 95 – 99% bucket and US$ 3.6mn for the last 1% of the index. The Nikkei 225 and MSCI Japan show even higher liquidity in their tails, a function of their smaller number of constituents.

Figure 22: Index Average ADV Profile - Cumulative Figure 23: Index Avg ADV Profile –Weighting Buckets 2048 512

1024 128

512 32

256 8

128 2

64 0.5 0% 20% 40% 60% 80% 100% 0- 20% 20-40% 40-60% 60-80% 80-90% 90-95% 95-99% 99- Weighted ADV ADV (US$ mn, Weighted Log) Weighted ADV (US$mn, Log ) (US$mn, Log ADV Weighted 100% Cumulative Index Weight (%) Index Weighting Buckets JPX Nikkei 400 Nikkei 225 Topix MSCI Japan JPX Nikkei 400 Nikkei 225 Topix MSCI Japan

Source: Deutsche Bank, Bloomberg Finance LP. Represents the cumulative average liquidity profile of Source: Deutsche Bank, Bloomberg Finance LP. Represents the weighted average liquidity of the index the index as you move from the largest constituents (LHS) to the smallest (RHS) at various weighting buckets. For example 99 – 100% represents the weighted liquidity of the last 1% of the index.

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Valuation Summary Figure 24 shows a valuation summary of the major traditional and smart beta indices in Japan. On a trailing basis, the Nikkei 400 looks relatively more attractive relative to peers, with lower P/E, in-line P/B and higher ROE. That said, the Nikkei 400 looks in-line with other major indices on a forward looking basis based on Bloomberg consensus data. On 1-year forward data (“FY1”), the index still has slightly above average ROE at 8.7% vs. 8.6% average. The index’s forward Price to Book ratio though is higher than average, at 1.2x versus an average of 1.1x. A similar trend can be seen in the 2-year forward (“FY2”) data. Similarly, the Nikkei 400’s trailing P/E of 14.0 is more attractive than the group average of 14.3, but the index is more expensive on a FY1 basis at 13.5x vs. 13.3x.

Figure 24: Japan Major Index Comparison Name P/E (TTM) P/E FY1 P/E FY2 P/B (TTM) P/B (FY1) P/B (FY2) ROE ROE (FY1) ROE (FY2) EV/EBITD EV/EBITD EV/EBITD (TTM) A (TTM) A (FY1) A (FY2) JPX Nikkei Index 400 14.0 13.6 12.4 1.3 1.2 1.1 9.5 8.7 8.8 9.0 8.8 8.2 Nikkei 225 18.6 16.2 14.6 1.5 1.4 1.3 8.4 9.5 9.8 8.9 8.3 7.8 Topix Index 13.8 13.2 11.9 1.2 1.1 1.1 9.0 8.6 8.7 9.1 8.6 8.0 Topix Core 30 Idx 11.6 11.9 10.8 1.2 1.1 1.0 10.7 8.5 8.6 9.6 9.6 8.9 Topix 500 Index 13.6 13.2 11.9 1.2 1.1 1.1 9.2 8.6 8.7 9.2 8.7 8.1 Msci Japan 13.5 13.0 11.7 1.2 1.1 1.1 9.4 8.7 8.8 9.5 9.0 8.4 Msci Japan Small Cap 14.8 13.2 11.9 1.0 1.0 0.9 6.9 7.5 8.1 8.6 7.9 7.3 FTSE RAFI Japan 12.1 12.1 10.7 1.0 1.0 0.9 8.9 8.3 8.5 8.4 8.0 7.4 Average 14.0 13.3 12.0 1.2 1.1 1.1 9.0 8.5 8.7 9.0 8.6 8.0

Div Yld Div Yld Div Yld 5-Year 3-Year 2-Year 1-Year YTD 3m 1m (TTM) (FY1) (FY2) Change Change Change Change Change Change Change JPX Nikkei Index 400 1.9 2.1 2.2 39.5 42.2 55.9 -3.4 -8.5 0.5 4.4 Nikkei 225 1.7 1.8 1.9 58.4 49.3 60.5 -2.4 -11.6 0.6 3.6 Topix Index 2.0 2.0 2.2 37.2 40.9 56.4 -3.9 -9.1 -0.1 4.4 Topix Core 30 Idx 2.4 2.5 2.8 22.2 36.8 57.4 -5.5 -11.2 -1.1 5.1 Topix 500 Index 2.0 2.1 2.3 34.9 39.5 56.5 -3.9 -9.4 -0.1 4.5 Msci Japan 2.0 2.2 2.4 35.4 38.6 56.0 -4.5 -9.9 -0.6 4.1 Msci Japan Small Cap 2.0 1.9 2.1 45.6 16.8 21.0 -3.3 -5.0 -0.7 2.5 FTSE RAFI Japan 2.2 2.3 2.5 35.3 37.5 58.5 -3.7 -9.2 -0.3 4.6 S&P Givi Japan Jpy 47.4 47.1 57.9 -2.5 -7.1 0.8 4.0 Russell Nomura Prime 37.6 40.3 56.0 -3.7 -9.1 -0.1 4.5 Average 2.0 2.1 2.3 38.6 37.7 52.8 -3.8 -9.2 -0.2 4.2 Source: Deutsche Bank, Bloomberg Finance LP. N.B. Fundamental data was unavailable for Russell Nomura Prime and S&P GIVI indices.

Trailing vs. Forward ROE Metrics This differential is trailing versus forward metrics is likely due the Nikkei 400’s selection methodology which uses 3-year trailing ROE as an input. While it would be difficult to use a forward ROE methodology due to constant changes in consensus estimates, we do highlight that this opens up the index to being in situations such as the above, where the Nikkei 400 marginal ROE advantage may not be “worth” the additional valuation costs. This analysis assumes that consensus estimate data is correct, which of course it may not be.

Nikkei 400 Forward ROE vs. P/B The relative additional P/B premium of the above indices is charted relative to ROE in Figure 25 below. We added simple regression lines to give an indication of where the ROE vs. P/B trade-off curve is currently priced based on Bloomberg consensus estimates.

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While a relatively small sample set, based on the universe above, the Nikkei 400 could be considered slightly expensive relative to other major benchmarks at this point in time.

Figure 25: Major Japan Indices – Forward ROE vs. Forward P/B

10.0

9.5

9.0 JPNK400

8.5 JPNK400 Forward ROE (%)

8.0 1.0 1.1 1.2 1.3 1.4 1.5 Forward P/B Series1 Series2 Linear (Series1) Linear (Series2)

Source: Deutsche Bank, Bloomberg Finance LP. N.B. ROE and P/B data was unavailable for Russell Nomura Prime and S&P GIVI indices.

While the ROE calculation may be backward looking, the increased focus on ROE and shareholder returns in general is likely to be positive for the market overall. If the Nikkei 400 develops further cachet, companies may be incentivized to improve returns in order to seek entry, which should be positive. The increased focus of major domestic investors, such as GPIF and other pension funds, should also pressure corporate Japan to look to improve returns.

Cross-index Performance

From a performance perspective, the Nikkei 400 has very similar performance to other broad-based market-capitalization weighted indices in Japan, such as the Topix and the Russell / Nomura Prime index. Over the last 3-years, the Nikkei 400 has seen price return of 42.2%, relatively in line with the Topix and Prime indices at 40.9% and 40.3%. On a 1-year basis, the Nikkei 400 has returned -3.4% vs. the Topix and Prime at -3.9% and -3.7%, respectively.

Figure 26: Traditional Benchmark Performance – 1 year Figure 27: Smart Beta Benchmark Performance – 1 year 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% Normalized Return (%)

-15% Normalized Return (%) -15% Jul-13 Jul-13 Apr-14 Oct-13 Jun-13 Jan-14 Apr-14 Oct-13 Feb-14 Mar-14 Jun-13 Jan-14 Aug-13 Sep-13 Nov-13 Dec-13 Mar-14 Feb-14 May-14 May-13 Nov-13 Aug-13 Sep-13 Dec-13 May-13 May-14 R/N Prime TPX NKY S&P GIVI RAFI MSCI Japan JPNK400 MSCI Japan Small JPNK400 Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

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On a longer term basis, the Nikkei 400 has shown better relative price performance returning 39.5% on a 5-year basis versus the Topix and Prime with 37.2% and 37.6% price return. Our pro-forma Nikkei 400 data goes back to September 2006 and has declined -20.4% relative to -25.7% and -25.5% for the Topix and Russell / Nomura Prime indices, respectively.

Figure 28: Traditional Benchmark Performance – 2006 to Figure 29: Smart Beta Benchmark Performance – 2006 to Current Current 20% 20%

0% 0%

-20% -20%

-40% -40%

-60% -60% Normalized Return (%) Normalized Return (%) Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 R/N Prime TPX NKY S&P GIVI RAFI MSCI Japan JPNK400 MSCI Japan Small JPNK400 Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

Note that the above data primarily represents a period when the Nikkei 400 did not exist. As it becomes more widely accepted, its performance may diverge going forward. Also, if an increased focus on ROE begins to take hold in Japan, we may also see additional divergence in the index’s performance. This “ROE halo” impact may be tempered though by the backward looking nature of the index’s calculation methodology as we described earlier.

Performance has been more differentiated relative to other indices such as the Nikkei 225, likely due to its price weighting methodology and some of the previously highlighted smart beta indices, such as the RAFI and the GIVI.

Figure 30: Correlation to Nikkei 400 - Traditional Figure 31: Correlation to Nikkei 400 – Smart Beta Benchmarks Benchmarks 100.0% 100% 100%

98.0% 98% 90%

96.0% 96% 80%

94.0% 94% 70%

92.0% 92% 60%

90.0% 90% 50% 3-month Correlation (%) Correlation 3-month 3-month Correlation 3-month (%) -09 -11 -13 -07 -12 y g y y g Jul-12 Apr-07 Apr-14 Oct-10 Jun-08 Jan-09 Jul-11 Mar-10 Feb-13 Nov-07 Sep-06 Dec-11 Au Sep-13 Ma Oct-07 Oct-12 Apr-10 Jan-14 Jan-09 Jun-09 Mar-08 Feb-11 Mar-13 Dec-06 Aug-08 Nov-09 Sep-10 Dec-11 Au Ma Ma JPNK400 & S&P GIVI JPNK400 & TPX JPNK400 & R/N Prime JPNK400 & RAFI JPNK400 & MSCI Jp JPNK400 & NKY JPNK400 & MSCI Jp Small (RHS) Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

In line with the similar performance profile, the Nikkei 400 has been very highly correlated with other traditional benchmark indices in Japan. Since September 2006, the Nikkei 400’s rolling 3-month correlation with the Topix, MSCI Japan and Russell

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Nomura Prime indices has never been below 99%. The correlation has been lower with the Nikkei 225 and other non-traditional indices as can be seen above.

Figure 32: Nikkei 400 less Topix – Daily Return Differentials

1.0%

0.5%

0.0%

-0.5%

Difference inDaily Returns (%) -1.0% -07 -09 -11 -12 -13 y y y y y Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-07 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-06 May-08 Ma May-10 Ma Ma Ma Ma

Daily Change Difference - JPNK400 less TPX Average = 0.004%

Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

The performance similarity with the Topix can be seen in Figure 32 above, which charts the daily performance differential in the Nikkei 400 versus the Topix since September 2006. The average daily performance difference over that period is 0.004%, or 4/10 of a basis point. The largest divergence occurred following the Tohoku earthquake in March 2011 with a 67bps outperformance of the Nikkei 400 relative to the Topix.

Figure 33: Relative Correlation vs. USDJPY – Traditional Figure 34: Relative Correlation vs. USDJPY – Smart Beta Benchmarks Benchmarks 90% 80% 60% 40% 40% 20% 0% -10% -20% -40% -60% -60% 3-month Correlation (%) Correlation 3-month 3-month Correlation (%) Correlation 3-month -13 -07 -12 -08 -07 -12 y y g y y g Jul-11 Jul-11 Oct-07 Oct-12 Apr-10 Jan-14 Jan-09 Jun-09 Mar-08 Feb-11 Mar-13 Dec-06 Dec-11 Aug-08 Nov-09 Sep-10 Au Apr-10 Oct-07 Oct-12 Jan-09 Jun-09 Jan-14 Ma Ma Mar-08 Mar-13 Feb-11 Nov-09 Dec-11 Sep-10 Dec-06 Au Aug-13 Ma Ma TPX / JPY R/N Prime / JPY S&P GIVI / JPY RAFI / JPY MSCI Jp / JPY JPNKY400 / JPY NKY / JPY MSCI Jp Small / JPY JPNKY400 / JPY Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

Figures 33 and 34, above, show the various Japanese benchmark’s correlation with USDJPY. All of the indices have a similar relationship to the Yen, with the exception of the MSCI Small Cap index.

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Figure 35: Rolling 3m Tracking Error vs. Nikkei 400 – Figure 36: Rolling 3m Tracking Error vs. Nikkei 400 – Traditional Benchmarks Smart Beta Benchmarks 16% 35% 14% 30% 12% 25% 10% 20% 8% 15% 6% 10% Error (%) 4% (%) Error 2% 5% 0% 0% Rolling 3-month Tracking 3-month Tracking Rolling Rolling 3-month Tracking 3-month Rolling Tracking Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

NKY R/N Prime MSCI Japan TPX S&P GIVI RAFI MSCI Japan Small

Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

Given the similar performance and correlation profiles, the large market-cap weighted indices show very small tracking error relative to Nikkei 400.This can be seen above in Figure 35.

Figure 37: Rolling 3m Realized Volatility – Traditional Figure 38: Rolling 3m Realized Volatility – Smart Beta Benchmarks Benchmarks 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20%

Realized Volatility (%) 10% 10% 0% Realized Volatility (%) 0% Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 R/N Prime TPX NKY S&P GIVI RAFI MSCI Japan JPNK400 MSCI Japan Small JPNK400 Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Source: Deutsche Bank, Bloomberg Finance LP, Nikkei

The volatility profile of the traditional benchmarks is relatively similar. The Nikkei 225 has shown an average premium of 2 volatility points over the Nikkei 400 throughout the period. The Topix has shown an average 0.2% volatility premium, in line with its high correlation to the Nikkei 400.

Increasing adoption of Nikkei 400 may impact its dynamic with other indices As we have previously highlighted, the Nikkei 400 has very similar characteristics to the Topix and the Russell / Nomura Prime, and to a lesser extent, MSCI Japan. It may diverge going forward as it begins to become a more widely accepted index. This would especially be the case if ROE takes on a more important role in the Japanese market.

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A Closer Look

Nikkei 400

JPX-Nikkei 400 is designed to encourage investment in stocks with high return on equity, which is a measure of how well companies use shareholders’ money to generate income. This new index aims to promote the quality, corporate governance and capital efficiency of Japanese companies using the power of the market. GPIF and other major pension funds have recently chosen this index as benchmark. Although they have not announced the size of their portfolio yet, we expect that it will be in the billions of dollars. In addition, there are now more than 20 funds (ETFs and Open-ended Funds) in Japan tracking the index, despite it only having launched in January 2014. It has attracted close to ¥87 billion (US$850 million) in inflows so far. The bulk of the flows has come from the three exchange-traded funds (ETFs) that Nomura Asset Management, Nikko Asset Management and Mitsubishi UFJ Asset Management set up to track the new index. The three ETFs garnered a combined ¥50 billion (US$490 million) in assets as of end of April. Osaka Exchange, Inc. (OSE) also announced that it will introduce futures based on JPX-Nikkei 400 by the end of November 2014.

Figure 39: Cumulative Inflows to ETFs Tracking Nikkei 400

600

500

400

300 US$ million

200

100

-

Nikkei Index 400 ETFs - Daily Cum. Flows

Source: Deutsche Bank, Bloomberg Finance LP

All these will put pressure on Japanese firms which don’t have a high ROE scores to perform better, otherwise they won’t be members of this important benchmark. Generally speaking, Japanese companies perform poorly on ROE metrics when compared with those in other countries in the region or in the US (9.49 for Nikkei 400, and 8.95 for Topix, vs. 15.08 for S&P 500, and 12.83 for MSCI Asia ex Japan). Japanese companies tend to hold on to less-profitable businesses and maintain large capital bases without investing for growth or distributing cash to investors. Some Japanese companies may start to change in response to this new index, however, the process may take a long time as relatively strong labor protection in the close-knit business society of Japan makes it very difficult to layoff workers and unload underperforming assets.

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Highlights of index methodology

Eligible universe:

Stocks listed in TSE (1st Section, 2nd section, Mothers, JASDAQ)

Excluding issues listed less than 3 yrs, Liabilities > assets, during any of the past 3 fiscal years, operating deficit, or overall deficit in all of the past 3 fiscal years, to be Delisted, etc.

Constituent selection/Index Calculation

1. The top 1000 issues will be selected: from those eligible based on trading value in the past 3 years and market cap on the base date for selection.

2. Scoring based on Quantitative Indicators: 1st: 1000 points – 1000th: 1 point. Then, overall score is determined by aggregating those ranking scores with the following weights. : 3 year average ROE (40%), 3-year cumulative operating profit (40%), market cap (20%).

3. Scoring based on Qualitative Indicators: the score is determined so that at most around 10 constituents are different from those chosen with only quantitative score above. Scores based on appointment of Independent Outside Directors (at least 2), Adoption or Scheduled Adoption of IFRS (pure IFRS), Disclosure of English Earnings Information via TDnet (Company Announcements Distribution Service in English).

4. Determination of Constituents: the 400 issues will be selected in descending order of high scores as constituents.

5. Each stock in the index is weighted by its free float market cap.

Sector weight comparison

We also compare the sector/industry weights of the Nikkei 400 and Topix. The Nikkei 400 has a bias towards Capital Goods, but is underweight in Automobile & Components and Banks. The Nikkei 400 uses a sector classification system consisting of 6 sectors and 36 industries, which is different from Topix who uses Topix 17 series. They both are different from the GICS sector classification. To make the comparison consistent for all indices we analyze the sector weights based on GICS industry group.

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Figure 40: Industry Group Weights: Nikkei 400 vs. Topix

18.0% 3.0% 1.9% 15.0% 2.0% 1.0% 0.9% -2.3% 0.6% 0.6% 0.6% 0.5% 0.3% 0.3%

12.0% 0.3% 1.0% 0.1% 0.1% 0.1% -0.1% -0.1% -0.2% -1.5% -0.2% -0.2% -0.5% -0.6%

9.0% -0.7% 0.0% -1.0% 6.0% -1.0%

3.0% -2.0%

Industry GroupIndustry Weights 0.0% -3.0%

Nikkei 400 TOPIX Over/under weight - rhs

Source: Deutsche Bank, Bloomberg Finance LP, Nikkei, Topix

Illiquid stocks and stocks with largest index weight As GPIF has not released their new asset allocation, we don’t know exactly how much it will allocate to each index. Based on Scenario One discussed above, and assuming that 50% of the additional allocation to passive will be into the Nikkei 400, then the inflow would be close to US$20bn. GPIF is likely to implement this change gradually over a certain period of time. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$15 bn new money to invest in the index. If the actual inflow is US$5bn, then the impact will be just one third of the numbers in the tables below.

Figure 41: Top 20 Most Illiquid Stocks

Flow % Index shares Ticker Name Weight Flow $mm mm Days 3167 JP Equity TOKAI Holdings Corp 0.015% 2.20 0.64 7.26 9031 JP Equity Nishi-Nippon Railroad Co Ltd 0.058% 8.75 2.28 6.37 8012 JP Equity Nagase & Co Ltd 0.060% 9.03 0.74 6.10 9045 JP Equity Keihan Electric Railway Co Ltd 0.102% 15.28 3.71 5.94 9042 JP Equity Hankyu Hanshin Holdings Inc 0.323% 48.51 8.86 5.30 8544 JP Equity Keiyo Bank Ltd/The 0.042% 6.29 1.43 5.14 8600 JP Equity TOMONY Holdings Inc 0.028% 4.24 1.00 5.10 9003 JP Equity Sotetsu Holdings Inc 0.072% 10.77 3.02 5.09 9948 JP Equity Arcs Co Ltd 0.040% 5.93 0.30 5.01 8051 JP Equity Yamazen Corp 0.022% 3.23 0.50 4.76 8356 JP Equity Juroku Bank Ltd/The 0.051% 7.60 2.18 4.63 2782 JP Equity Seria Co Ltd 0.041% 6.08 0.16 4.61 8385 JP Equity Iyo Bank Ltd/The 0.111% 16.70 1.86 4.57 7458 JP Equity Daiichikosho Co Ltd 0.055% 8.26 0.29 4.42 4045 JP Equity Toagosei Co Ltd 0.045% 6.79 1.62 4.39 3098 JP Equity Cocokara fine Inc 0.026% 3.84 0.14 4.13 8359 JP Equity Hachijuni Bank Ltd/The 0.117% 17.48 3.20 4.09 7451 JP Equity Mitsubishi Shokuhin Co Ltd 0.021% 3.20 0.14 4.04 9041 JP Equity Kintetsu Corp 0.311% 46.64 13.28 4.00 1417 JP Equity Mirait Holdings Corp 0.025% 3.69 0.42 3.92

Source: Deutsche Bank, Bloomberg Finance LP., Nikkei, Note: Assuming US$15bn of inflows

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Figure 42: Top 20 Largest Weights

Flow % Index shares Ticker Name Weight Flow $mm mm Days 9984 JP Equity SoftBank Corp 1.909% 286.37 3.86 0.26 6954 JP Equity FANUC Corp 1.766% 264.94 1.47 1.39 6501 JP Equity Hitachi Ltd 1.502% 225.33 31.69 1.62 9432 JP Equity Nippon Telegraph & Telephone Corp 1.476% 221.47 4.00 1.99 4502 JP Equity Takeda Pharmaceutical Co Ltd 1.471% 220.66 4.92 1.50 9433 JP Equity KDDI Corp 1.435% 215.20 4.04 1.38 7203 JP Equity Toyota Motor Corp 1.433% 214.94 3.98 0.49 3382 JP Equity Seven & I Holdings Co Ltd 1.432% 214.82 5.45 2.96 7267 JP Equity Honda Motor Co Ltd 1.405% 210.81 6.38 1.04 8411 JP Equity Mizuho Financial Group Inc 1.399% 209.86 107.28 1.45 2914 JP Equity Japan Tobacco Inc 1.372% 205.76 6.27 1.49 7751 JP Equity Canon Inc 1.332% 199.86 6.36 1.62 8316 JP Equity Sumitomo Mitsui Financial Group Inc 1.273% 190.98 4.84 0.60 8306 JP Equity Mitsubishi UFJ Financial Group Inc 1.273% 190.89 36.01 0.60 8802 JP Equity Mitsubishi Estate Co Ltd 1.259% 188.79 8.34 1.60 8058 JP Equity Mitsubishi Corp 1.211% 181.71 10.16 2.08 8801 JP Equity Mitsui Fudosan Co Ltd 1.210% 181.43 6.14 1.57 4503 JP Equity Astellas Pharma Inc 1.180% 177.00 15.92 2.16 9020 JP Equity East Japan Railway Co 1.180% 176.98 2.43 2.58 9437 JP Equity NTT DOCOMO Inc 1.135% 170.26 10.73 1.66

Source: Deutsche Bank, Bloomberg Finance LP, Nikkei Note: Assuming US$15bn of inflows

Russell Nomura Prime

Russell and Nomura Securities Co., Ltd. produce a family of Japan equity indexes, including the Prime index. The indexes are value weighted and include only common stocks domiciled in Japan. All indexes are subsets of the Russell/Nomura Total Market™ Index, which represents 98% of the investable Japan equity market.

Highlights of index methodology Eligible universe: The Prime index consists of the largest 1,000 securities by available market capitalization in the Russell/Nomura Total Market Index (TMI) containing the top 98% (approximately 1,400 stocks) of the available market capitalization in the Japanese market. Stocks under supervision (examination) and stocks under supervision (confirmation), REITs and Foreign stocks listed in Japan are excluded from the universe for TMI.

Constituent selection/Index Calculation

1. Negative list (exclusion of low liquidity stocks): Stocks ranked 2,001st or lower in terms of average monthly trading value in the year to the regular reconfiguration date of record are excluded.

2. Banding method (900–1,100 rule): Stocks ranked 900 or higher by float- adjusted market capitalization are included in the index, regardless of whether or not they were included in the index prior to the reconfiguration. Stocks ranked 901 to 1,100 are included in the index only if they were

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included in the index prior to the reconfiguration, until 1,000 stocks have been selected. If 1,000 stocks have not been selected after going through the 1,100 stocks in this way, stocks ranked between 901 and 1,100 that were not included in the index prior to the reconfiguration are selected until a total of 1,000 stocks has been selected.

3. Each stock in the index is weighted by its free float market cap.

Sector weight comparison

Among all the analyzed indices in this section, Russell Nomura Prime industry group weights are closest with that of Topix. The maximum overweight and underweight percentage across all the industry group are just 0.4% and 0.6% respectively. Again, as Russell and Topix use different sector classification system, to make the comparison consistent for all indices, we analyze the sector weights based on GICS industry group.

Figure 43: Industry Group Weights: Russell Nomura Prime vs. Topix

18.0% 0.6% 0.4% -0.1% 15.0% 0.3% 0.4% 0.2% 0.2% 0.1% 0.1% 0.1% -0.6% 0.1% 0.1% 0.1%

0.0% 0.2% 0.0% 0.0% 12.0% 0.0% 0.0% 0.0% 0.0% -0.1% -0.1%

-0.1% 0.0% 9.0% -0.2% -0.3% -0.2% 6.0% -0.4% 3.0% -0.6%

Industry GroupIndustry Weights 0.0% -0.8%

Russell Nomura Prime TOPIX Over/under weight - rhs

Source: Deutsche Bank, Bloomberg Finance LP, Russell, Topix

Illiquid stocks and stocks with largest index weight As explained above, we don’t know exactly how much GPIF will allocate to each index. Based on Scenario One discussed above, and assuming that 25% of the additional allocation to passive will be into the Nikkei 400, then the inflow would be close to US$10bn. GPIF is likely to implement this change gradually over a certain period of time. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$5 bn new money to invest in the index. If the actual inflow is US$2bn, then the impact will be just 40% of the numbers in the tables below.

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Figure 44: Top 20 Most Illiquid Stocks

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 9708 JP Equity IMPERIAL HOTEL,LTD. 0.009% 0.47 0.02 3.95 7914 JP Equity KYODO PRINTING CO.,LTD. 0.006% 0.32 0.12 2.78 8173 JP Equity JOSHIN DENKI CO.,LTD. 0.009% 0.47 0.06 2.74 8066 JP Equity MITANI CORPORATION 0.012% 0.60 0.03 2.69 3201 JP Equity THE JAPAN WOOL TEXTILE CO.,LTD. 0.014% 0.70 0.09 2.43 4958 JP Equity T.HASEGAWA CO.,LTD. 0.011% 0.57 0.04 2.36 8536 JP Equity THE HIGASHI-NIPPON BANK,LIMITED 0.011% 0.54 0.21 2.32 8342 JP Equity THE AOMORI BANK,LTD. 0.016% 0.82 0.30 2.28 8529 JP Equity THE DAISAN BANK,LTD. 0.008% 0.39 0.23 2.25 8395 JP Equity THE BANK OF SAGA LTD. 0.008% 0.39 0.19 2.22 4966 JP Equity C.UYEMURA & CO.,LTD. 0.009% 0.44 0.01 2.22 7279 JP Equity HI-LEX CORPORATION 0.017% 0.83 0.03 2.21 4628 JP Equity SK KAKEN CO.,LTD. 0.012% 0.62 0.01 2.18 6905 JP Equity COSEL CO.,LTD. 0.009% 0.44 0.04 2.15 8374 JP Equity THE MIE BANK,LTD. 0.007% 0.35 0.16 2.15 5192 JP Equity MITSUBOSHI BELTING LTD. 0.008% 0.42 0.08 2.11 8032 JP Equity JAPAN PULP AND PAPER COMPANY LIMITED 0.008% 0.42 0.12 2.09 3950 JP Equity THE PACK CORPORATION 0.009% 0.45 0.02 2.06 2908 JP Equity FUJICCO CO.,LTD. 0.007% 0.33 0.03 2.05 8392 JP Equity THE OITA BANK,LTD. 0.019% 0.95 0.26 2.04

Source: Deutsche Bank, Bloomberg Finance LP, Russell Note: Assuming US$5bn of inflows

Figure 45: Top 20 Largest Weights

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 7203 JP Equity TOYOTA MOTOR CORPORATION 3.972% 198.59 3.68 0.45 8306 JP Equity MITSUBISHI UFJ FINANCIAL GROUP,INC. 2.388% 119.42 22.50 0.38 9984 JP Equity SOFTBANK CORP. 2.106% 105.32 1.42 0.10 7267 JP Equity HONDA MOTOR CO.,LTD. 1.831% 91.55 2.77 0.45 8316 JP Equity SUMITOMO MITSUI FINANCIAL GROUP,INC. 1.828% 91.42 2.32 0.29 8411 JP Equity MIZUHO FINANCIAL GROUP,INC. 1.613% 80.66 41.19 0.56 9432 JP Equity NIPPON TELEGRAPH AND TELEPHONE CORPORATI 1.567% 78.35 1.41 0.70 6954 JP Equity FANUC CORPORATION 1.303% 65.17 0.36 0.34 7751 JP Equity CANON INC. 1.249% 62.47 1.98 0.51 2914 JP Equity JAPAN TOBACCO INC. 1.217% 60.83 1.85 0.44 6501 JP Equity HITACHI,LTD. 1.205% 60.25 8.47 0.43 4502 JP Equity TAKEDA PHARMACEUTICAL COMPANY LIMITED 1.184% 59.22 1.32 0.40 3382 JP Equity SEVEN & I HOLDINGS CO.,LTD. 1.064% 53.18 1.35 0.73 9433 JP Equity KDDI CORPORATION 1.032% 51.59 0.97 0.33 8802 JP Equity MITSUBISHI ESTATE COMPANY,LIMITED 0.918% 45.88 2.03 0.39 4503 JP Equity ASTELLAS PHARMA INC. 0.868% 43.39 3.90 0.53 8801 JP Equity MITSUI FUDOSAN CO.,LTD. 0.846% 42.30 1.43 0.36 9020 JP Equity EAST JAPAN RAILWAY COMPANY 0.840% 42.00 0.58 0.61 8058 JP Equity MITSUBISHI CORPORATION 0.839% 41.94 2.34 0.48 8031 JP Equity MITSUI & CO.,LTD. 0.835% 41.75 2.94 0.54

Source: Deutsche Bank, Bloomberg Finance LP, Russell Note: Assuming US$5bn of inflows

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S&P GIVI Japan

The S&P GIVI (Global Intrinsic Value Index) is designed to provide an alternative measure of global stock market performance through the selection of a global low-risk stock portfolio and a weighting scheme where a stock’s index weight is determined by its calculated intrinsic value.

Highlights of index methodology

Eligible universe: The S&P GIVI is constructed from the constituents of the S&P Global BMI, which covers all publicly listed equities with a minimum float-adjusted market cap of US$ 100 million and a minimum annual dollar value traded (ADVT) of US$ 50 million from each of its included countries. The index universe for the S&P GIVI is a low-risk subset of the S&P Global BMI, where 30% of the total float-adjusted market capitalization is removed, in order of the most volatile stocks as measured by regional market stock beta.

Constituent selection/Index Calculation 1. The intrinsic value of each stock is determined by its book value and its discounted projected earnings. The discount rate is calculated using a stock’s beta, derived from its previous five years of price returns and a risk free interest rate. There is cap on Intrinsic Value Weights if it is above its regional BMI float-adjusted market cap weight by a specific upper bound. The excess weight is redistributed to other stocks in the index in proportion to their original intrinsic value weight.

2. Low risk Stock Selection. The risk of each stock in the S&P BMI universe is measured by the regional market beta of the stock. For each country, the stocks are sorted by their betas and select 70% of the universe with the lowest betas. The 70% selection is measured by float-adjusted market capitalization. The resulting stock portfolio forms the S&P GIVI.

3. Buffer Rule for Index Constituents’ Beta. A 5% buffer is applied to stocks already in the index. For a constituent to be removed from the index during a rebalancing, it must be among the highest 25% of float-adjusted weights when ranked by beta. This 5% buffer reduces index portfolio turnover.

4. Following the S&P BMI, during the S&P GIVI September reconstitution, index constituents that fall below US$ 75 million float-adjusted market capitalization or trade less than US$ 35 million during the preceding 12 months are dropped from the index.

5. Each stock in the index is weighted by its calculated intrinsic value, rather than the market cap.

Sector weight comparison

Unlike Topix and any other index being analyzed in this section, S&P GIVI has given largest weight to Automobiles & Components followed by Banks. Similarly, Capital Goods underweighted by 8.5% and ranked 4th. Most of the remaining industry groups weights are closely matching with that of Topix.

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Figure 46: Industry Group Weights: S&P GIVI vs. Topix

18.0% 6.0% 3.4% 5.1% 4.0% 15.0% 1.2% 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.3% 0.3% 0.2%

0.1% 2.0% 0.1% 0.0% -0.1% -0.1% -0.2% -0.4% -0.7% 12.0% -0.7% 0.0% -2.3% -2.3% 9.0% -2.0% -8.5% -4.0% 6.0% -6.0% 3.0% -8.0%

Industry GroupIndustry Weights 0.0% -10.0%

S&P GIVI TOPIX Over/under weight - rhs

Source: Deutsche Bank, Bloomberg Finance LP, S&P, Topix

Illiquid stocks and stocks with largest index weight As explained above, we don’t know exactly how much GPIF will allocate to each index. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$3 bn new money to invest in the index.

Figure 47: Top 20 Most Illiquid Stocks

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 8421 JP Equity Shinkin Central Bank 0.162% 4.85 0.00 34.16 2733 JP Equity Arata Corp 0.025% 0.74 0.23 10.22 2790 JP Equity Nafco Co Ltd 0.029% 0.87 0.06 10.17 9310 JP Equity Japan Transcity Corp 0.018% 0.53 0.17 8.22 8364 JP Equity Shimizu Bank 0.029% 0.87 0.04 7.72 8395 JP Equity Bank of Saga 0.044% 1.31 0.63 7.49 8173 JP Equity Joshin Denki Co 0.036% 1.07 0.13 6.27 9902 JP Equity Nichiden Corp 0.031% 0.92 0.04 5.99 9534 JP Equity Hokkaido Gas Co Ltd 0.016% 0.48 0.18 5.86 8543 JP Equity Minato Bank, The 0.062% 1.85 1.08 5.79 8374 JP Equity Mie Bank 0.031% 0.92 0.43 5.66 8529 JP Equity Daisan Bank 0.032% 0.96 0.58 5.59 8217 JP Equity Okuwa Co Ltd 0.033% 0.98 0.11 5.52 5909 JP Equity Corona Corp 0.019% 0.56 0.06 5.46 8536 JP Equity Higashi-Nippon Bank 0.041% 1.23 0.49 5.33 8349 JP Equity Tohoku Bank, The 0.017% 0.50 0.35 5.27 8343 JP Equity Akita Bank 0.066% 1.99 0.72 5.17 2288 JP Equity Marudai Food Co 0.046% 1.38 0.46 5.11 2692 JP Equity Itochu Shokuhin Co Ltd 0.015% 0.46 0.01 4.86 8541 JP Equity Ehime Bank 0.048% 1.44 0.66 4.85

Source: Deutsche Bank, Bloomberg Finance LP, S&P Note: Assuming US$3bn of inflows

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Figure 48: Top 20 Largest Weights

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 7203 JP Equity Toyota Motor Corp 6.881% 206.42 3.82 0.47 7267 JP Equity Honda Motor Co 3.133% 93.98 2.84 0.46 8316 JP Equity Sumitomo Mitsui Financial Group 2.976% 89.27 2.26 0.28 8411 JP Equity Mizuho Financial Group Inc 2.887% 86.60 44.23 0.60 9432 JP Equity Nippon Tel & Tel Corp 1.975% 59.25 1.07 0.53 7751 JP Equity Canon Inc 1.521% 45.64 1.45 0.37 9984 JP Equity Softbank Corp 1.370% 41.11 0.55 0.04 7201 JP Equity Nissan Motor Co 1.288% 38.64 4.50 0.38 9437 JP Equity NTT DOCOMO 1.276% 38.28 2.41 0.37 9433 JP Equity KDDI Corp 1.185% 35.56 0.67 0.23 6501 JP Equity Hitachi 1.179% 35.38 4.97 0.25 2914 JP Equity Japan Tobacco Inc 1.137% 34.11 1.04 0.25 9020 JP Equity East Japan Railway Co 1.132% 33.96 0.47 0.49 3382 JP Equity Seven & I Holdings Co Ltd 1.104% 33.12 0.84 0.46 8766 JP Equity Tokio Marine Holdings Inc 1.099% 32.96 1.12 0.58 9022 JP Equity Central Japan Railway Co 1.080% 32.40 0.26 0.70 5108 JP Equity Bridgestone Corp 1.066% 31.98 0.89 0.33 4502 JP Equity Takeda Pharmaceutical Co Ltd 1.034% 31.03 0.69 0.21 6971 JP Equity Kyocera Corp 0.908% 27.25 0.58 0.45 4578 JP Equity Otsuka Holdings Co Ltd 0.821% 24.64 0.86 0.58

Source: Deutsche Bank, Bloomberg Finance LP, S&P Note: Assuming US$3bn of inflows

RAFI

GPIF hasn’t clearly specified the exact index for “Nomura RAFI reference index”. This may be a customized index designed by Nomura and Research Affiliates for GPIF, so the details are not publically available. The FTSE/RAFI Japan index, designed by FTSE and Research Affiliates, could be similar to Nomura RAFI reference index, although may not be exactly same. We hope to shed some light on the Nomura RAFI reference index by looking at the FTSE/RAFI Japan index.

The FTSE RAFI Index Series weights index constituents using specific fundamental factors, rather than market capitalization. Therefore at review constituent weights are not based on price valuations established by the market.

Highlights of index methodology

Eligible universe: The FTSE RAFI Japan Index will be selected from the FTSE Global Equity Index with the largest RAFI fundamental values.

Constituent selection/Index Calculation 1. The representation of each stock in the universe is calculated as a percentage of each of the factors below: a) Sales (5 year average), b) Cash Flow (5 year average), c) Book Value, d) Dividends (5 year total dividend). If a stock has not paid dividends in the past five years, it will have a percentage representation of zero.

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2. The RAFI fundamental value is defined as 10,000,000 times the average of the four percentage representation figures above. However, for a stock with a zero dividend percentage, its RAFI fundamental value is defined as 10,000,000 times the average of the three remaining percentage representation figures (sales, cash flow and book value).

3. The RAFI fundamental value is calculated for each company as a whole, rather than for individual securities issued by the company. Where a company is represented within the FTSE RAFI Index Series by two or more lines of stock, the company’s RAFI fundamental value is allocated between these lines of stock in proportion to their investable market capitalizations

4. All stocks are ranked in descending order by their RAFI fundamental value. Companies are selected by their RAFI fundamental values, according to each specific index criteria.

5. To calculate the FTSE RAFI adjustment factor, FTSE divides the investable RAFI fundamental value of each constituent by its investable market capitalization as at the close of business on the Monday 4 weeks prior to the review effective date. This is the weighting factor used in the FTSE RAFI Index Series calculation.

6. The FTSE RAFI adjustment factor is applied to the investable market capitalization: price * shares * investability weighting * FTSE RAFI adjustment factor. This cancels out the market capitalization effect and the RAFI fundamental value is captured.

Sector weight comparison

Although weight differences do not appear too large (less than 2%), all the heavy weights like Capital Goods, Automobile & Components and Banks are given higher weights in FTSE RAFI Japan Index when compared to Topix. Most of the underweighted industry groups are from the bottom of the weight ranking.

Figure 49: Industry Group Weights: FTSE RAFI Japan vs. Topix

18.0% 2.0% 1.8% 1.6% 1.3% 1.0%

1.1% 1.5% 0.9%

15.0% 0.9% 0.7% 0.7% 1.0% 12.0% 0.1% 0.5% 0.0% -0.4% -0.4%

9.0% -0.4% 0.0% -0.5% -0.6% -0.6% -0.7% -0.7% -0.9% -0.9% -0.5% 6.0% -1.2% -1.7% -1.3% -1.0% 3.0% -1.5%

Industry Group Weights Industry 0.0% -2.0%

FTSE RAFI Japan TOPIX Over/under weight - rhs

Source: Deutsche Bank, Bloomberg Finance LP, FTSE, Topix

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Illiquid stocks and stocks with largest index weight As explained above, we don’t know exactly how much GPIF will allocate to each index. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$3 bn inflow.

Figure 50: Top 20 Most Illiquid Stocks

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 8020 JP Equity Kanematsu Corpn 0.102% 3.05 1.98 0.98 5007 JP Equity Cosmo Oil 0.143% 4.29 2.29 0.83 2768 JP Equity Sojitz 0.297% 8.90 5.64 0.81 8015 JP Equity Toyota Tsusho 0.580% 17.40 0.66 0.79 8630 JP Equity NKSJ Holdings 0.614% 18.43 0.74 0.74 7911 JP Equity Toppan Printing 0.234% 7.03 1.02 0.72 9501 JP Equity Tokyo Electric Power 0.982% 29.46 7.80 0.72 5012 JP Equity TonenGeneral Sekiyu 0.243% 7.29 0.77 0.70 8334 JP Equity Gunma Bank 0.100% 2.99 0.56 0.70 8725 JP Equity MS&AD Insurance Group Holdings 0.656% 19.67 0.88 0.70 9062 JP Equity Nippon Express 0.284% 8.53 1.80 0.69 9504 JP Equity Chugoku Electric Power 0.197% 5.90 0.45 0.69 7240 JP Equity NOK 0.099% 2.96 0.18 0.68 9364 JP Equity Kamigumi 0.092% 2.77 0.29 0.67 8369 JP Equity Bank of Kyoto 0.123% 3.68 0.45 0.67 9042 JP Equity Hankyu Hanshin Holdings 0.200% 6.00 1.10 0.66 5019 JP Equity Idemitsu Kosan 0.164% 4.92 0.22 0.64 9502 JP Equity Chubu Elec Power 0.388% 11.63 1.02 0.64 4188 JP Equity Mitsubishi Chemical Holdings 0.419% 12.58 3.14 0.64 9005 JP Equity Tokyu Corp 0.331% 9.93 1.58 0.63

Source: Deutsche Bank, Bloomberg Finance LP, FTSE Note: Assuming US$3bn of inflows

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Figure 51: Top 20 Largest Weights

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 7203 JP Equity Toyota Motor 4.312% 129.35 2.40 0.29 8306 JP Equity Mitsubishi UFJ Financial 3.438% 103.15 19.44 0.32 7267 JP Equity Honda Motor Co 2.579% 77.37 2.34 0.38 8316 JP Equity Sumitomo Mitsui Financial Group 2.045% 61.35 1.55 0.19 8411 JP Equity Mizuho Financial Group 2.017% 60.51 30.90 0.42 6501 JP Equity Hitachi 1.769% 53.08 7.46 0.38 9432 JP Equity NTT 1.736% 52.09 0.94 0.47 7751 JP Equity Canon 1.631% 48.94 1.55 0.40 6758 JP Equity Sony Corp 1.568% 47.05 2.68 0.29 8058 JP Equity Mitsubishi Corp 1.559% 46.76 2.61 0.54 8031 JP Equity Mitsui & Co 1.460% 43.80 3.09 0.57 7201 JP Equity Nissan Motor 1.337% 40.10 4.67 0.39 4502 JP Equity Takeda Pharmaceutical 1.282% 38.46 0.86 0.26 6752 JP Equity Panasonic Corp 1.224% 36.73 3.35 0.32 9020 JP Equity East Japan Railway 1.208% 36.24 0.50 0.53 3382 JP Equity Seven & I Holdings 1.136% 34.07 0.86 0.47 6502 JP Equity Toshiba Corp 1.088% 32.65 8.34 0.34 9437 JP Equity NTT Docomo 1.033% 30.99 1.95 0.30 8053 JP Equity Sumitomo Corp 0.999% 29.96 2.31 0.49 9984 JP Equity Softbank 0.996% 29.89 0.40 0.03

Source: Deutsche Bank, Bloomberg Finance LP, FTSE Note: Assuming US$3bn of inflows

Topix

Sector weights

Topix is the most broad index among all the indices being analyzed here. Capital Goods, Automobile & Components and Banks are the top 3 weighted industry groups with 15.6%, 12.3% and 9.2% index weight respectively.

Figure 52: Industry Group Weights: Topix

18.0%

15.0%

12.0%

9.0% TOPIX

6.0%

3.0%

Industry GroupIndustry Weights 0.0%

Source: Deutsche Bank, Bloomberg Finance LP, FTSE, Topix

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Illiquid stocks and stocks with largest index weight As explained above, we don’t know exactly how much GPIF will allocate to each index. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$40bn inflow to Topix. If the actual inflow is US$8bn, then the impact will be just 20% of the numbers in the tables below.

Figure 53: Top 20 Most Illiquid Stocks

% Index Flow $ Flow Ticker Name Weight mm shares mm Days 9982 JP Equity Takihyo Co Ltd 0.004% 1.61 0.40 34.14 9731 JP Equity Hakuyosha Co Ltd 0.002% 0.64 0.27 33.41 8081 JP Equity Kanaden Corp 0.004% 1.69 0.24 33.20 8158 JP Equity Soda Nikka Co Ltd 0.003% 1.07 0.25 32.56 7715 JP Equity Nagano Keiki Co Ltd 0.003% 1.04 0.16 31.80 2009 JP Equity Torigoe Co Ltd/The 0.004% 1.49 0.22 30.71 9993 JP Equity Yamazawa Co Ltd 0.002% 0.85 0.06 29.76 4362 JP Equity Nippon Fine Chemical Co Ltd 0.003% 1.31 0.21 29.72 7504 JP Equity Kohsoku Corp 0.003% 1.28 0.14 27.81 2207 JP Equity Meito Sangyo Co Ltd 0.003% 1.29 0.12 27.55 3878 JP Equity Tomoegawa Co Ltd 0.002% 0.76 0.40 27.45 1780 JP Equity Yamaura Corp 0.001% 0.37 0.13 26.81 7481 JP Equity OIE Sangyo Co Ltd 0.002% 0.63 0.08 26.76 4410 JP Equity Harima Chemicals Group Inc 0.002% 0.95 0.22 26.76 9306 JP Equity Toyo Logistics Co Ltd 0.003% 1.05 0.42 26.53 8065 JP Equity Sato Shoji Corp 0.003% 1.37 0.22 26.48 6973 JP Equity Kyoei Sangyo Co Ltd/Tokyo 0.001% 0.51 0.29 25.42 2204 JP Equity Nakamuraya Co Ltd 0.006% 2.49 0.64 25.34 4687 JP Equity TDC Software Engineering Inc 0.001% 0.42 0.05 25.20 8173 JP Equity Joshin Denki Co Ltd 0.011% 4.28 0.53 25.09

Source: Deutsche Bank, Bloomberg Finance LP, Topix Note: Assuming US$40bn of inflows

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Figure 54: Top 20 Largest Weights

% Index Flow $ Flow Ticker Name Weight mm shares mm Days 7203 JP Equity Toyota Motor Corp 4.632% 1,852.91 34.34 4.22 8306 JP Equity Mitsubishi UFJ Financial Group Inc 2.445% 978.03 184.49 3.08 9984 JP Equity SoftBank Corp 2.220% 887.82 11.96 0.82 7267 JP Equity Honda Motor Co Ltd 1.835% 734.14 22.21 3.61 8316 JP Equity Sumitomo Mitsui Financial Group Inc 1.816% 726.55 18.42 2.28 8411 JP Equity Mizuho Financial Group Inc 1.546% 618.24 316.05 4.27 9432 JP Equity Nippon Telegraph & Telephone Corp 1.325% 529.84 9.57 4.76 2914 JP Equity Japan Tobacco Inc 1.258% 503.00 15.32 3.64 6954 JP Equity FANUC Corp 1.238% 495.39 2.75 2.59 7751 JP Equity Canon Inc 1.125% 449.89 14.31 3.64 4502 JP Equity Takeda Pharmaceutical Co Ltd 1.086% 434.42 9.68 2.96 6501 JP Equity Hitachi Ltd 1.056% 422.29 59.39 3.03 9433 JP Equity KDDI Corp 1.006% 402.39 7.56 2.58 3382 JP Equity Seven & I Holdings Co Ltd 1.004% 401.67 10.19 5.54 8802 JP Equity Mitsubishi Estate Co Ltd 0.964% 385.78 17.05 3.26 8058 JP Equity Mitsubishi Corp 0.849% 339.78 19.00 3.90 8801 JP Equity Mitsui Fudosan Co Ltd 0.848% 339.24 11.48 2.93 4503 JP Equity Astellas Pharma Inc 0.827% 330.96 29.76 4.04 9020 JP Equity East Japan Railway Co 0.827% 330.93 4.54 4.82 9437 JP Equity NTT DOCOMO Inc 0.796% 318.35 20.07 3.10

Source: Deutsche Bank, Bloomberg Finance LP,Topix Note: Assuming US$40bn of inflows

MSCI Japan

Sector weight comparison

MSCI Japan has given higher weights to Automobile & Components and Real Estate as compared to Topix, while Capital Goods is underweighted by 1.2%. Weight differences are not too large for the remaining industry groups between MSCI Japan and Topix.

Figure 55: Industry Group Weights: MSCI Japan vs. Topix

18.0% 2.5% 1.9% -1.2% 2.0% 15.0% 1.3% 1.5% 12.0% 1.0% 0.5% 0.5% 0.3% 0.4% 0.4% 9.0% 0.2% 0.5% 0.0% -0.1% -0.1% -0.1% -0.1% -0.8% -0.2% -0.2% -0.3% -0.3% -0.3% -0.3% -0.4% -0.4% -0.4% 0.0% 6.0% -0.5% 3.0% -1.0%

Industry Group Weights Industry 0.0% -1.5%

MSCI Japan TOPIX Over/under weight - rhs

Source: Deutsche Bank, Bloomberg Finance LP, MSCI, Topix

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15 May 2014 Japan Indices

Illiquid stocks and stocks with largest index weight As explained above, we don’t know exactly how much GPIF will allocate to each index. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$5 bn inflow.

Figure 56: Top 20 Most Illiquid Stocks

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 9042 JP Equity Hankyu Hanshin Holdings Inc 0.247% 12.35 2.25 1.35 8385 JP Equity Iyo Bank Ltd/The 0.092% 4.59 0.51 1.25 9006 JP Equity Keikyu Corp 0.153% 7.66 0.92 1.19 9008 JP Equity Keio Corp 0.161% 8.06 1.14 1.08 9041 JP Equity Kintetsu Corp 0.251% 12.54 3.57 1.07 9364 JP Equity Kamigumi Co Ltd 0.088% 4.38 0.46 1.07 8359 JP Equity Hachijuni Bank Ltd/The 0.090% 4.48 0.82 1.05 9007 JP Equity Odakyu Electric Railway Co Ltd 0.217% 10.83 1.23 1.02 9001 JP Equity Tobu Railway Co Ltd 0.197% 9.85 2.01 0.98 8369 JP Equity Bank of Kyoto Ltd/The 0.103% 5.17 0.63 0.94 8377 JP Equity Hokuhoku Financial Group Inc 0.087% 4.36 2.26 0.94 8334 JP Equity Gunma Bank Ltd/The 0.080% 3.98 0.75 0.93 8382 JP Equity Chugoku Bank Ltd/The 0.082% 4.12 0.31 0.91 8955 JP Equity Japan Prime Realty Investment Corp 0.109% 5.43 0.00 0.90 9005 JP Equity Tokyu Corp 0.282% 14.10 2.24 0.90 9504 JP Equity Chugoku Electric Power Co Inc/The 0.153% 7.65 0.58 0.89 2702 JP Equity McDonald's Holdings Co Japan Ltd 0.073% 3.63 0.13 0.89 8333 JP Equity Joyo Bank Ltd/The 0.129% 6.43 1.32 0.87 8951 JP Equity Nippon Building Fund Inc 0.302% 15.10 0.00 0.86 8960 JP Equity United Urban Investment Corp 0.141% 7.07 0.00 0.85

Source: Deutsche Bank, Bloomberg Finance LP, MSCI Note: Assuming US$5bn of inflows

Deutsche Bank Securities Inc. Page 37

15 May 2014 Japan Indices

Figure 57: Top 20 Largest Weights

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 7203 JP Equity Toyota Motor Corp 5.866% 293.32 5.43 0.67 9984 JP Equity SoftBank Corp 2.811% 140.55 1.89 0.13 8306 JP Equity Mitsubishi UFJ Financial Group Inc 2.664% 133.19 25.10 0.42 7267 JP Equity Honda Motor Co Ltd 2.125% 106.23 3.21 0.52 8316 JP Equity Sumitomo Mitsui Financial Group Inc 1.979% 98.95 2.51 0.31 8411 JP Equity Mizuho Financial Group Inc 1.773% 88.65 45.27 0.61 2914 JP Equity Japan Tobacco Inc 1.423% 71.17 2.17 0.51 7751 JP Equity Canon Inc 1.405% 70.27 2.23 0.57 4502 JP Equity Takeda Pharmaceutical Co Ltd 1.397% 69.85 1.55 0.48 6954 JP Equity FANUC Corp 1.359% 67.97 0.38 0.36 6501 JP Equity Hitachi Ltd 1.355% 67.74 9.52 0.49 3382 JP Equity Seven & I Holdings Co Ltd 1.171% 58.55 1.48 0.81 9433 JP Equity KDDI Corp 1.129% 56.46 1.06 0.36 8802 JP Equity Mitsubishi Estate Co Ltd 1.116% 55.82 2.46 0.47 8058 JP Equity Mitsubishi Corp 0.991% 49.53 2.77 0.57 8801 JP Equity Mitsui Fudosan Co Ltd 0.975% 48.77 1.65 0.42 8031 JP Equity Mitsui & Co Ltd 0.971% 48.54 3.42 0.63 9020 JP Equity East Japan Railway Co 0.965% 48.24 0.66 0.70 9437 JP Equity NTT DOCOMO Inc 0.955% 47.77 3.01 0.47 6752 JP Equity Panasonic Corp 0.953% 47.63 4.35 0.42

Source: Deutsche Bank, Bloomberg Finance LP, MSCI Note: Assuming US$5bn of inflows

MSCI Japan Small Cap

Sector weight comparison

Industry group weight differences are fairly large in case of MSCI Japan Small Cap Index in comparison to Topix. Capital Goods, Materials and Real Estate are over weighted by more than 4% in each case while Banks, Technology Hardware & Equipment and Automobiles & Components are under weighted in the MSCI Japan Small Cap Index. Also, this index does not have any constituent from Telecommunication Services industry group.

Page 38 Deutsche Bank Securities Inc.

15 May 2014 Japan Indices

Figure 58: Industry Group Weights: MSCI Japan Small Cap vs. Topix

21.0% 8.0% 6.2% 4.2% 18.0% 4.2% 6.0% 2.6% 2.3% 4.0% 1.4% 1.3% 1.2% 1.0%

15.0% 0.8% 0.7% 0.6% 0.5% 0.5%

0.1% 2.0% -0.6%

12.0% -1.4% -1.9% 0.0% -2.2% -2.2% -2.4% 9.0% -3.3% -2.0% -5.3%

-8.2% -4.0% 6.0% -6.0% 3.0% -8.0%

Industry GroupIndustry Weights 0.0% -10.0%

MSCI Japan Small Cap TOPIX Over/under weight - rhs

Source: Deutsche Bank, Bloomberg Finance LP, MSCI, Topix

Illiquid stocks and stocks with largest index weight As explained above, we don’t know exactly how much GPIF will allocate to each index. To get a sense of the potential impact, we estimate the most impacted names in the index by total value to trade and days to trade, assuming US$3 bn inflow.

Figure 59: Top 20 Most Illiquid Stocks

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 9663 JP Equity Nagawa Co Ltd 0.029% 0.88 0.04 16.06 7914 JP Equity Kyodo Printing Co Ltd 0.041% 1.24 0.46 10.66 8173 JP Equity Joshin Denki Co Ltd 0.059% 1.78 0.22 10.45 3201 JP Equity Japan Wool Textile Co Ltd/The 0.091% 2.72 0.37 9.42 8395 JP Equity Bank of Saga Ltd/The 0.053% 1.60 0.77 9.12 7161 JP Equity Jimoto Holdings Inc 0.075% 2.26 1.14 8.93 2692 JP Equity Itochu-Shokuhin Co Ltd 0.028% 0.84 0.02 8.88 5192 JP Equity Mitsuboshi Belting Co Ltd 0.055% 1.66 0.32 8.38 8536 JP Equity Higashi-Nippon Bank Ltd/The 0.064% 1.92 0.77 8.29 4966 JP Equity C Uyemura & Co Ltd 0.053% 1.60 0.03 8.12 8325 JP Equity Hokuetsu Bank Ltd/The 0.086% 2.58 1.26 8.12 8032 JP Equity Japan Pulp & Paper Co Ltd 0.054% 1.63 0.48 8.11 2908 JP Equity Fujicco Co Ltd 0.044% 1.31 0.11 8.00 8089 JP Equity Nice Holdings Inc 0.025% 0.75 0.37 7.98 8392 JP Equity Oita Bank Ltd/The 0.122% 3.67 1.01 7.89 7893 JP Equity Pronexus Inc 0.026% 0.79 0.12 7.73 6905 JP Equity Cosel Co Ltd 0.052% 1.56 0.14 7.68 6454 JP Equity Max Co Ltd 0.076% 2.29 0.21 7.64 4216 JP Equity Asahi Organic Chemicals Industry Co Ltd 0.030% 0.89 0.41 7.59 9066 JP Equity Nissin Corp 0.040% 1.19 0.42 7.57

Source: Deutsche Bank, Bloomberg Finance LP, MSCI Note: Assuming US$3bn of inflows

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15 May 2014 Japan Indices

Figure 60: Top 20 Largest Weights

Flow % Index Flow $ shares Ticker Name Weight mm mm Days 3269 JP Equity Advance Residence Investment Corp 0.597% 17.92 0.01 2.87 6361 JP Equity Ebara Corp 0.559% 16.76 2.82 0.87 6479 JP Equity Minebea Co Ltd 0.550% 16.50 2.04 0.61 7453 JP Equity Ryohin Keikaku Co Ltd 0.537% 16.11 0.14 0.52 8954 JP Equity Orix JREIT Inc 0.529% 15.86 0.01 2.24 8964 JP Equity Frontier Real Estate Investment Corp 0.520% 15.60 0.00 2.95 4684 JP Equity Obic Co Ltd 0.445% 13.35 0.44 2.39 4751 JP Equity CyberAgent Inc 0.443% 13.30 0.32 0.24 5714 JP Equity Dowa Holdings Co Ltd 0.443% 13.29 1.58 1.15 9962 JP Equity MISUMI Group Inc 0.424% 12.71 0.52 1.48 6674 JP Equity GS Yuasa Corp 0.423% 12.69 2.24 0.87 4631 JP Equity DIC Corp 0.415% 12.45 4.69 0.90 4042 JP Equity Tosoh Corp 0.415% 12.45 3.26 1.10 4555 JP Equity Sawai Pharmaceutical Co Ltd 0.414% 12.43 0.20 1.00 3279 JP Equity Activia Properties Inc 0.399% 11.97 0.00 2.62 8967 JP Equity Japan Logistics Fund Inc 0.398% 11.95 0.01 1.65 3281 JP Equity GLP J-Reit 0.397% 11.90 0.01 1.64 6770 JP Equity Alps Electric Co Ltd 0.393% 11.80 1.04 0.38 4272 JP Equity Nippon Kayaku Co Ltd 0.393% 11.79 0.99 1.55 4021 JP Equity Nissan Chemical Industries Ltd 0.393% 11.79 0.79 1.01

Source: Deutsche Bank, Bloomberg Finance LP, MSCI Note: Assuming US$3bn of inflows

Page 40 Deutsche Bank Securities Inc.

15 May 2014 Japan Indices

Listed Products tracking these indices

Figure 61: Major Futures Contracts in Japan Exchange Contract Bloom- FX Multi-plier Expiry Contract 3m ADV First Contract CFTC Settle- Listed berg Code Value (US$) (US$ mn) Open Interest Approved ment Options? (US$ mn, 3m Avg) OSE Nikkei 225 NK1 JPY 1,000 Quarterly 140,335 11,200.66 49,914 Yes Cash Yes OSE Nikkei 225 Mini NO1 JPY 100 Quarterly 14,029 4,262.89 4,554 Yes Cash TSE Topix TP1 JPY 10,000 Quarterly 113,907 7,214.38 59,068 Yes Cash Yes

Nikkei 225 SGX (SGX) NI1 JPY 500 Quarterly 69,826 7,176.41 18,337 Yes Cash Nikkei 225 CME (CME) NX1 USD 5 Quarterly 72,075 1,367.03 4,666 Yes Cash Source: Deutsche Bank, Bloomberg Finance. N.B. only includes

Deutsche Bank Securities Inc. Page 41

15 May 2014 Japan Indices

71.1 AUM (US$mn)

% 426.1 I Japan 100% Hedged to EUR Index EUR to Hedged 100% Japan I Pa,SWX,XTF- BI,LSE,NYX 0.64% 4,0 ockIndex USD to Hedged 100% Japan MSCI LSE,SWX 0.64% 71.3 Issuer Underlying Index Exchanges Listed TER .K Deutsche AWM MSCI Japan US Dollar Hedged Net - NYX Ny 0.50% 441.3 Code K9.MI Deutsche AWM MSCIHedged Japan Euro Monthly Index BI,XTF 0.60 JG.L Deutsche AWM MSCI Japan GBP Hedged Monthly Index LSE 0.60% 49.1 Reuters Reuters p an Ca an Small p p ETF NameETF Code BBG JPX Index 400 JPX Nikkei ETF400 Index JPX-Nikkei Funds Next JP 1591 1591.TManagement Asset Nomura 400Index Nikkei JPX TSE ETF Small-Cap Japan MSCI iShares 0.15% US SCJ 217.6 SCJ BlackRock Cap Small Japan MSCI - Ny NYX 0.48% 150.1 Maxis JPX- Nikkei index 400 400 ETF index Nikkei JPX- Maxis 400 Index JPX-Nikkei Fund Index Listed 400 Nikkei JPX - ETF Daiwa Ja MSCI JP 1592 JP 1593 1592.T 1593.TJP 1599 Management Asset Nikko Mg Asset UFJ Mitsubishi 1599.T 400 Index Nikkei JPX Management Asset Daiwa 400 Index Nikkei JPX 400Index Nikkei JPX TSE (Inc) ETF UCITS SmallCap Japan MSCI iShares TSEiShares MSCI Japan Small Cap UCITS ETFNikkei 225 ETF225 Nikkei Nomura 225 Index Traded Exchange Nikko TSE225 Nikkei - ETF Daiwa ETF 225 Nikkei Maxis ETF Index 225 Leveraged Nikkei Funds Next 225 Nikkei iShares (DE)225 NIKKEI iShares LN ISJP ETF 2x Bull Nikkei225 Simplex ETF Index Inverse 225 Nikkei Funds Next Fund Index 225 Nikkei MAXIS CSJPS SW ETF UCITS 225 Nikkei iShares ISJP.L ETF -1x Bear Nikkei225 Simplex 225 NIKKEI ComStageETF CSJPS.S Mini 225 Nikkei Fund Index Listed Nikko na 0.05% BlackRock 225db Nikkei x-trackers UCITS1D ETF (DR) JP 1570 BlackRock ETF Call Covered 225 Nikkei JP 1330 120.1 153.6 0.23% 1570.OS JP 1321 1330.T JP 1571 49.6 JP 1320 Management Asset Nomura 1321.OS JP 1346 Management Asset Nikko JP 1579 1571.OS GR NKYEX 1320.OS Management Asset Cap Nomura Small Japan MSCI GR XDJP US NKY JP 1578 Index 225 Leveraged Nikkei JP 1329 1346.OS SW CSNKY MSCI Japan Small Cap Management Asset Nomura JP 1580 1579.T Management N225EX.DE Asset Daiwa 225 Nikkei XDJP.DE BlackRock CSNKY.S Mg Asset UFJ Mitsubishi NKY 1578.T 225 Nikkei 1329.TGR CBNKY Ltd Co Management Asset Simplex 1580.T Index Inverse 225 Nikkei Deutsche AWM BlackRock Index Leveraged Nikkei225 JP 1565 225 Nikkei CBN225.DE Management Asset Nikko BlackRock Precidian Ltd Co Management Asset Simplex ComStage 225 Nikkei Index Inverse Nikkei225 1565.T OSE LSE,SWX,XTF 225 Nikkei BI,LSE,NYX - Pa,SWX,XTF Ltd Co Management Asset Simplex 225 NIKKEI 225 NIKKEI Call Index 225 Covered Nikkei 225 NIKKEI OSE TSE 225 Nikkei 225 Nikkei TSE 225 NIKKEI 0.58% OSE TSE OSE 63.5 0.59% TSE OSE 0.80% 116.7 2,547.5 TSE XTF BI,LSE,SWX,XTF 0.80% 0.75% - Pa,SWX,XTF BI,LSE,NYX 137.7 0.23% TSE 204.0 SWX,XTF - Ny NYX 0.24% 8,753.0 0.75% 17,888.9 0.17% 83.4 0.28% 0.48% 7,612.6 0.17% 0.25% 4,111.0 87.0 3.7 0.23% 14.9 0.51% 50.9 212.0 0.45% 0.50% 0.30% 116.9 75.4 878.4 iShares MSCI Japan ETF Japan MSCI iShares US EWJ EWJ BlackRock Japan MSCI - Ny,ASX NYX 0.48% 13,488.8 iShares MSCI Japan EUR Hedged UCITS ETF IJPE LN IJPE.L Blackrock MSC iShares MSCI Japan UCITS ETF (Inc) ETF UCITS Japan MSCI iShares iShares MSCI Japan - B UCITS ETF "A" Japan MSCI UBS-ETF db MSCI x-trackers Japan Index UCITS ETF ETF UCITS Hedged GBP Japan MSCI iShares Fund Equity Currency-Hedged Japan MSCI db x-trackers US DBJP LN IJPN XMJP GR DBJP LN IJPH CSJP SW IJPN.L XMJP.DE IJPH.L CSJP.S SW JPNCHA Deutsche AWM BlackRock JPNCHA.S BlackRock BlackRock UBS MSCI Japan Japan MSCI Index GBP to Hedged 100% Japan MSCI MSCI Japan Japan MSCI LSE BI,BME,LSE,NYX - Pa,OMX,SWX,XTF,SGX 0.50% Pa,SWX,XTF- - Am,NYX BI,LSE,NYX 696.3 BI,LSE,NYX - Pa,SWX,XTF 0.59% 2,055.9 BI,LSE,OMX,SWX,XTF 0.64% 621.8 0.48% 1,355.9 0.35% 795.4 db x-trackers MSCIHedgeddb EUR UCITSIndex Japan x-trackers TRN ETF ETF UCITS Hedged CHF Japan MSCI iShares ETF MSCIAmundi Japan UCITS ETFHSBC MSCI Japan ETF (Acc) ETF UCITS Japan MSCI iShares XMK9 IM A-acc ETF UCITS USD to hedged 100% Japan - MSCI ETF UBS A-acc ETF UCITS CHF to hedged 100% Japan - MSCI ETF UBS iShares MSCI Japan USD Hedged UCITS ETF XM SW JPUSBH SW JPCHBH JPUSBH.S SW IJPC JPCHBH.S UBS UBS IJPC.S CJ1 FP LN SJPA IJPD LN BlackRock CJ1.PA SJPA.L IJPD.L HMJP LN Amundi BlackRock BlackR HMJP.L USD to hedged 100% Japan MSCI CHF to hedged 100% Japan MSCI HSBC Index CHF to Hedged 100% Japan MSCI SWX SWX SWX Japan MSCI MSCI Japan MSCI Japan 0.45% 0.45% 0.64% - Am,SWX,XTF BI,LSE,NYX 113.4 BI,LSE,NYX - Pa,SWX,XTF 399.5 89.7 LSE,NYX - Pa,SWX,XTF 0.48% 0.45% 164.0 296.2 0.40% 190.6 MSCI Japan Source ETF Source Japan MSCI A-acc ETF UCITS EUR to hedged 100% Japan - MSCI ETF UBS Hedged GBP ETF UCITS Index TRN Japan MSCI x-trackers db SW JPEUBH LN XMJG JPEUBH.S UBS XM GR SMSJPN SMSJPN.DE Source EUR to hedged 100% Japan MSCI SWX,XTFJapan MSCI 0.45% 56.2 LSE,XTF 0.40% 57.3 UBS - ETF MSCI Japan 100% hedged to GBP UCITS ETF A-acciShares MSCI Japan Large Cap UCITS ETFUBS plcETFs - MSCI A-accIndex SF Japan TRN (JPY) TRN Japan MSCI ETF ComStage UC62 LN Japan MSCI Ultra ProShares MSCIDeka Japan UCITS ETF Japan MSCI Equity Japan Fund Index Listed Nikko UC62.L MSCI Japan UltraShort ProShares MSCIDeka Japan LC UCITS ETF JPJYAS SW MSCIDeka Japan MC UCITS ETFiShares Currency Hedged MSCI Japan ETF UBSDirexion Daily Japan Bull 3x Shares JPJYAS.S A Infrastructure Japan MSCI UBS-ETF CSJPL SWDirexion Daily Japan Bear 3x Shares UBS JP 1544 Ja MSCI CSJPL.S 1544.T GR CBNDDUJN BlackRock CBMINJP.DE ComStage US EZJ Management Asset Nikko US HEWJ ETFJPAC GR EWV US ETFJPLC GR ETFJPAC.DE MSCI Japan 100% hedged to GBP ETFJPMC GR HEWJ.K EZJ GmbH Investment Deka GY UIMZ EWV ETFJPLC.DE JPNL US ETFJPMC.DE Japan MSCI GmbH Investment Deka GmbH Investment Deka MSCI Japan JPNS US BlackRock JAIEUA.DE JPNL MSCI Japan Large Cap ProShares ProShares UBS MSCI Japan JPNS Japan MSCI LSE,SWX MSCI Japan Large MSCI Cap Japan Mid Cap DirexionShares DirexionShares MSCI Japan Japan MSCI Japan MSCI BI,LSE,NYX - Pa,SWX,XTF MSCI Japan TSE Index Infrastructure Japan MSCI BI,LSE,SWX,XTF MSCI Japan XTF 0.45% XTF XTF SWX,XTF 47.5 0.48% BI,LSE,SWX,XTF 44.7 0.33% - NYX Ny - Ny NYX - Ny NYX 39.8 0.16% NYX - Ny NYX - Ny 0.50% 0.45% 0.50% 14.6 0.48% 0.50% 27.1 9.9 8.2 18.7 5.8 0.48% 0.95% 0.95% 8.1 0.95% 26.1 11.0 0.95% 7.7 3.1

List of ETFs tracking these indices Source:Deutsche Bank, Bloomberg Finance LP, Reuters.

Page 42 Deutsche Bank Securities Inc.

15 May 2014 Japan Indices

0 .6 6.1 5.1 AUM (US$mn) (US$mn)

2% 23.0 8% 3.0 E0.32%17.6 E 0.28% 5.4 ortation Equipmentortation TSE 0.32% 47.9 ortation Equipmentortation TSE 0.28% 6.0 nces & Precision Instruments & Precision nces TSE Instruments & Precision nces TSE 0.28% 0.32% 10.9 10.1 Issuer Underlying Index Exchanges Listed TER Code Reuters 1305 JP1305 JP1308 1305.T 1308.T Management Asset Daiwa Management Asset Nikko TOPIX TOPIX TSE TSE 0.12% 0.09% 10,802.8 6,532.7 x x ETF Name BBG Code Nikko ETF Topi ETF TOPIX MAXIS HedgedEur Daily Topix UCITSETF ETF Amundi Topix Japan ETF Lyxor Banks Topix Nomura ETF 2x Bull Topix ETF Ex-Financials TOPIX - ETF Daiwa Lyxor ETF Japan (Topix) Daily hedged 30 Core Topix Nomura Ex-Financials Topix Fund Index Listed Nikko ETF Materials & Construction Topix-17 Funds Next Ex-Financials TOPIX ETF NZAM FP TPXH ETF Estate Real Topix-17 Funds Next ETF -1x Bear Topix ETF Trade Retail Topix-17 Funds Next ETF Equipment TPXH.PA Transportation & Automobiles Topix-17 Funds Next ETF Others Services, & IT Topix-17 Funds Next JP 1622 ETF30 Core Topix Maxis Amundi JP 1619 Topix EasyETF (EUR) ETF Logistics & Transportation Topix-17 Funds Next JP 1585 JP 1586 ETF Foods Topix-17 Funds Next JPNH FP 1622.TComStage TOPIX ETF JP 1348 FP JPN 1619.T ETF Trade Wholesale & Commercial Topix-17 Funds Next 1585.T 1586.T JP 1615 Management Asset Nomura JPNH.PA Management Asset 1348.T Nomura JP 1633 JP 1626 JPN.PA JP 1568 Management Asset Daiwa JP 1596 Lyxor JP 1628 Management Asset Nikko JP 1311 JP 1630 1615.T JP 1629 Transp & Automobiles TOPIX-17 Mg Asset UFJ Mitsubishi Lyxor 1633.T Materials & Construction 1626.T TOPIX-17 Hedg DailyTR TOPIX Euro 1568.T 1596.T 1628.T Management Asset 1311.T Nomura 1630.T Index Ex-Financials TOPIX 1629.T Index Ex-Financials TOPIX Management Asset Nomura Management Asset Nomura Co Ltd Management Asset Simplex JP 1569 NZAM Management Asset Nomura Management Asset Nomura TOPIX Management Asset Nomura Index (2x) Leveraged TOPIX Index Management Banks Asset TOPIX Nomura JP 1344 JP 1617 Estate Real TOPIX-17 1569.T Other Services, & IT TOPIX-17 TSE FP EJP Logistics & Transportation TOPIX-17 30 Core TOPIX Trade Retail TOPIX-17 1344.T Trade Wholesale & Commerical TOPIX-17 1617.T TOPIX Co Ltd Management Asset Simplex CBTPXGR Pa,SWX,XTF BI,NYX- Index (-1x) Inverse TOPIX TOPIX EJP.PA Mg Asset UFJ Mitsubishi TSE Management Asset Nomura TSE CBTOPX.DE TS TSE ComStage TSE Paribas BNP Index Ex-Financials TOPIX TSE Index Foods TOPIX-17 30 Core TOPIX TSE TSE 0.48% TSE 1,032.3 TSE TSE 0.32% TSE TOPIX TOPIX 57 TSE 0.19% BI,NYX - Pa,XTF 0.09% TSE Pa,SWX,XTF,SGX- BI,BME,LSE,NYX 0.75% 202.6 0.3 61.6 0.32% 352.3 TSE 0.45% 0.23% 42.9 0.32% 664.0 0.32% 412.7 0.08% 52.6 0.75% 0.22% 0.45% 49.4 1,763.1 51.9 112.1 76.4 0.11% NYX - Pa SWX,XTF 0.32% 56.7 22.0 0.19% 34.7 0.50% 0.45% 32.2 20.3 Next Funds Topix-17 Machinery ETF Machinery Topix-17 Funds Next Appliances Elec Topix Nomura ETF Focus Asia Topix YOURMIRAI Appliances Elec Topix - ETF Daiwa 30 Core Topix - ETF Daiwa ETF Banks TOPIX-17 Funds Next Equity Cap Small Japan Small Topix Nikko ETF Instruments Precision & Appliances Electric Topix-17 - ETF Daiwa JP 1642 Equity Cap Large 100 Japan Topix Mollp Nikko Cap Equity Mid Japan Mid400 Topix Nikko ETF Instruments Precision & Appliances Electric Topix-17 Funds Next ETF JPFerrous 1625 Non & Steel Topix-17 Funds Next 1642.T ETF Materials & Construction Topix-17 - ETF Daiwa JP 1624 1625.T Management Asset Daiwa JP 1562 JP 1613 JP 1610 JP 1318 1624.T JP 1316 Management Asset Nomura Applia Electric TOPIX-17 JP 1636 JP 1631 1562.T JP 1317 1613.T Management Asset Nomura JP 1623 1610.T 1318.T 1316.T JP 1310 Applia Electric TOPIX-17 Management Asset Mitsui Sumitomo 1636.T 1631.T Management Asset Nomura Index Asia in 1317.T Active TOPIX Management Asset Management Asset Daiwa Nikko Management Asset Nikko 1623.T Machinery TOPIX-17 1310.T Management Asset Daiwa Management Asset Nomura Management Asset Nikko Index Applicances Management Asset Electirc TOPIX Nomura Management Asset Daiwa Index Applicances Electirc TOPIX Small TOPIX 100 TOPIX Banks TOPIX-17 Materials & Construction TOPIX-17 Nonferrous & Steel TOPIX-17 Mid400 TOPIX 30 Core TOPIX TSE TSE TSE TSE TSE TSE TSE TSE TSE TSE TSE 0.42% 0.22% 0.22% 15.8 0.32% 16.8 0.28% 15.4 16.9 0.32% 9. 9.7 0.50% 0.32% 0.20% 0.50% 0.22% 12.5 13.1 10.5 10.5 15.3 Next Funds Topix-17 Financials (ex Banks) ETF Banks) (ex Financials Topix-17 Funds Next Banks Topix - ETF Daiwa ETF Chemicals & Materials Raw Topix-17 Funds Next ETF Equipment Transportation & Automobiles Topix-17 - ETF Daiwa JP 1639 1639.T JP 1620 JP 1632 Management Asset Daiwa 1620.T 1632.T Management Asset Nomura Transp & Automobiles TOPIX-17 Management Asset Nomura JP 1612 Chemicals& Materials Raw TOPIX-17 Banks) (ex Financials TOPIX-17 1612.T Management Asset Daiwa TSE TSE Index Banks TOPIX 0.32% TSE 0.32% 8.2 0.22% 7.2 Next Funds Topix-17 Pharmaceutical ETF Pharmaceutical Topix-17 Funds Next ETF Banks Topix-17 - ETF Daiwa ETF Trade Wholesale & Commercial Topix-17 - ETF Daiwa JP 1646 1646.T JP 1621 Management Asset Daiwa 1621.T JP 1648 Management Asset Nomura Trade Wholesale & Commerical TOPIX-17 1648.T Pharmaceutical TOPIX-17 Management Asset Daiwa TS Banks TOPIX-17 TSE TSE 0.32% 5.8 0.28% 5.7 Russell/Nomura PRIME Russell/Nomura Japan PRIME ETF Russell/Nomura SPDR US JPP JPP State Street PRIME Russell/Nomura NYX - Ny ETF Machinery Topix-17 - ETF Daiwa 0.50% 127.7 JP 1641 1641.T Management Asset Daiwa Machinery TOPIX-17 TSE 0.28% 4.8 TOPIX ETFTOPIX - Topi ETF Daiwa JP 1306 1306.TManagement Asset Nomura TOPIX ETF Others Services, & IT Topix-17 - ETF Daiwa ETF Resources Energy Topix-17 Funds Next ETF Foods Topix-17 - ETF Daiwa ETF Gas & Power Electric Topix-17 Funds Next ETF Pharmaceutical Topix-17 - ETF Daiwa ETF TSE Logistics & Transportation Topix-17 - ETF Daiwa ETF Trade Retail Topix-17 - ETF Daiwa ETF Estate Real Topix-17 - ETF Daiwa ETF Banks) (ex Financials Topix-17 - ETF Daiwa ETF Resources Energy Topix-17 - ETF Daiwa JP 1643 ETF Nonferrous & Steel Topix-17 - ETF Daiwa ETF Gas & Power Electric Topix-17 - ETF Daiwa JP 1618 JP 1645 JP 1627 1643.T JP 1638 1618.T 1645.T 1627.T Management Asset Daiwa JP 1634 JP 1649 Management JP 1647 Asset Nomura 1638.T Management Asset Daiwa JP 1635 Management Asset Nomura JP 1640 JP 1650 JP 1644 0.12% 1634.T 1649.T Other Services, & IT TOPIX-17 14,962.3 Management Asset 1647.T Daiwa Resources Energy TOPIX-17 1635.T Gas& Power 1640.T Electric 1650.T TOPIX-17 Management 1644.T Asset Daiwa Logistics & Transportation TOPIX-17 Management Asset Daiwa Management Asset Daiwa Management Asset Daiwa Management Asset Management Asset Daiwa Daiwa Pharmaceutical Management TOPIX-17 Asset Daiwa Index Foods TOPIX-17 Banks) (ex Financials TOPIX-17 Trade TSE Retail TOPIX-17 TSE Resources Energy TOPIX-17 Nonferrous & Steel Estate Real TOPIX-17 TOPIX-17 Gas & Power Electric TOPIX-17 TSE TSE TSE TSE TSE TSE TSE TSE TSE TSE 0.28% 0.2 0.32% 0.32% 4.2 3.9 4.1 0.28% 0.28% 0.28% 0.28% 0.28% 0.28% 2.7 3.8 0.28% 1.9 0.28% 4.1 2.1 2.5 2.9 2.8 Daiwa ETF - Topix-17 Raw Materials & Chemicals Etf Chemicals & Materials Raw Topix-17 - ETF Daiwa ETF Japan KODEX Samsung JP 1637 1637.T Management Asset Daiwa KS 101280 Chemicals& Materials Raw TOPIX-17 101280.KSManagement Asset Samsung 100 TOPIX TSE 0.28% KSE 0.35% 5.0

Source:Deutsche Bank, Bloomberg Finance LP, Reuters.

Deutsche Bank Securities Inc. Page 43

15 May 2014 Japan Indices

Glossary Exchange Name Short name Australian Securities Exchange ASX BME BME Borsa Italiana BI Deutsche Borse XTF Korea Stock Exchange KSE London Stock Exchange LSE NYSE Arca NYX - Ny NYSE Euronext Amsterdam NYX - Am NYSE Euronext Paris NYX - Pa Osaka Stock Exchange OSE Singapore Exchange SGX SIX Swiss Exchange SWX Stockholmborsen OMX Tokyo Stock Exchange TSE

Page 44 Deutsche Bank Securities Inc.

15 May 2014 Japan Indices

Appendix 1 Important Disclosures

Additional information available upon request

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Shan Lan/Will Stephens

Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 90 share-holder return (TSR = percentage change in 80 63 % share price from current price to projected target price 70 plus pro-jected dividend yield ) , we recommend that 60 50 34 % investors buy the stock. 40 Sell: Based on a current 12-month view of total share- 30 29 % 19 % holder return, we recommend that investors sell the 20 3 % 10 0 % stock 0 Hold: We take a neutral view on the stock 12-months Buy Hold Sell out and, based on this time horizon, do not recommend either a Buy or Sell. Companies Covered Cos. w/ Banking Relationship Notes: Japan Universe 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends)

of -10% or worse over a 12-month period

Deutsche Bank Securities Inc. Page 45

15 May 2014 Japan Indices

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Page 46 Deutsche Bank Securities Inc.

David Folkerts-Landau Group Chief Economist Member of the Group Executive Committee

Guy Ashton Marcel Cassard Richard Smith and Steve Pollard Global Chief Operating Officer Global Head Co-Global Heads Research FICC Research & Global Macro Economics Equity Research

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