Nomura Japan Equity HighDividend 70 Market Neutral Index
EQUITY QUANTITATIVE RESEARCH

Can be used as an alternative to bond investment

Global Markets Research
15 November 2017

Research analysts
Aims for high performance through a high-dividend investment strategy hedged
against market risk
We have developed the Nomura Japan Equity High Dividend 70 Market Neutral Index
to reflect the performance of a market-neutral strategy involving a combination of longpositions in the Nomura Japan Equity High Dividend 70, Total Dividend Weighted withshort positions in TOPIX futures.
Index values are calculated from the difference between the return on the Nomura
Japan Equity High Dividend 70, Total Dividend Weighted (the "underlying index") andthe beta-adjusted return on TOPIX futures. The index is meant to extract only theexcess return versus the market for a high-dividend stock investment strategy (known
as one example of a smart beta strategy), and aims to reap high dividend yields andstable returns regardless of market direction.

Japan quantitative research
Sayuri Otsuka - NSC
sayuri.otsuka@nomura.com+81 3 6703 1397
Yasuhiro Shimizu - NSC
yasuhiro.shimizu@nomura.com+81 3 6703 1748

The underlying index, which corresponds to the long side of the new index, comprises
70 large cap high-liquidity Japanese stocks selected for high forecast dividend yield.
Stocks are screened for DOE (total dividends/shareholders’ equity) to take quality andstability of dividends into account, and the index is designed for easier management ona large asset scale by weighting the stocks by total dividend value. On the short side of
the new index, the hedge ratio used for hedging with TOPIX futures is adjusted on adaily basis to reflect the beta of the underlying index versus the TOPIX. This allows for
precise hedging of short-term market fluctuations.
This market-neutral index shows high performance from the perspective of riskadjusted returns, with average annual returns of 3.25% between February 2002 andOctober 2017, with annualized risk of 5.35% and a return-risk ratio of 0.61 (Figure 1).
As a result of this hedging of market risk, the index has a risk-return profile somewhere
between bonds and stocks, and could thus be characterized as middle-risk, middlereturn. Forecast dividend yield for the underlying index has been stably higher than thatof the TOPIX (Figure 2). The most recent data (at the beginning of November 2017)shows forecast dividend yield for the underlying index 1ppt higher than for the TOPIX,
suggesting that stable income gains from dividends can be expected.
Since the BOJ's introduction of NIRP, demand has risen sharply for alternatives tobond investment that have relatively low risk but that offer stable performance andincome gains. It is our hope that this index can be useful in addressing these needs.

Japanese version published on
November 15, 2017
Production Complete: 2017-11-15 08:24 UTC

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | Nomura Japan Equity High Dividend 70 Market Neutral Index

15 November 2017

Fig. 1: Performance summaryHigh Dividend 70 Market Neutral Index

Risk-return profile (Feb 2002-Oct 2017)

Av erage return （ annualized, %)20,00015,00010,000(End Jan 2002 = 10000)

10High Dividend 70(HD70)

8

Japan equity market benchmark(TOPIX)

6
4

High Dividend 70 Market Neutral Index(HD70MN)

2

Japan bond market benchmark(NOMURA-BPI)

0
0

5,000

5
10
15
Standard dev iation (annualized, %)HD70MN

HD70

TOPIX

NOMURABPI

3.25

7.98

5.65

1.84

5.35

15.75

17.61

1.93

0.61

0.51

0.32

0.96

Geometric mean return(annualized, %)Standard deviation(annualized, %)0

20

Return/risk

Note: Index returns including dividends from February 2002 through October 2017. Risk-return profile calculated from monthly returns.
Transaction costs are not included. Analysis is based on past performance and does not guarantee future performance.
Source: Nomura

Fig. 2: Forecast dividend yield(%)
6

High Dividend 70
TOPIX

5(Reference) New-issue 10-year JGB yields
4
3
2
1
0
-1

Note: Dividend yield forecasts are calculated based on the weighted average of current fiscal year dividend yield forecasts
for constituent stocks as of the start of each month and each stock's weighting in the index as of the end of the previous
month. New-issue 10-year JGB yields use yields as of the end of the previous month as the starting values for each month.
Source: Nomura*For details on the underlying index and this market neutral index, see our securities
market index website (Japanese only: http://qr.nomura.co.jp/jp/index.html)

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Appendix A-1
Analyst Certification
We, Sayuri Otsuka and Yasuhiro Shimizu, hereby certify (1) that the views expressed in this Research report accurately reflect
our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of ourcompensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in thisResearch report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Important Disclosures
The lists of issuers that are affiliates or subsidiaries of Nomura Holdings Inc., the parent company of Nomura Securities Co., Ltd., issuers thathave officers who concurrently serve as officers of Nomura Securities Co., Ltd., issuers in which the Nomura Group holds 1% or more of any
class of common equity securities and issuers for which Nomura Securities Co., Ltd. has lead managed a public offering of equity or equity
linked securities in the past 12 months are available at http://www.nomuraholdings.com/report/. Please contact the Research ProductManagement Dept. of Nomura Securities Co., Ltd. for additional information.

Online availability of research and conflict-of-interest disclosures
Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc., or Instinet, LLC on 1-877-865-5752. If you have any difficulties with the website, pleaseemail grpsupport@nomura.com for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to
FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a researchanalyst account.
Nomura Global Financial Products Inc. (“NGFP”) Nomura Derivative Products Inc. (“NDPI”) and Nomura International plc. (“NIplc”) areregistered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, andNIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.

Distribution of ratings (Nomura Group)
The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with thisrating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services** by the Nomura Group.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 51% of companies withthis rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 6% of companies with thisrating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services by the Nomura Group.
As at 30 September 2017.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
** As defined by the EU Market Abuse Regulation
Distribution of ratings (Instinet, LLC)
The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
54% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
41% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
5% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.

Definition of Nomura Group's equity research rating system and sectors
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the statedtarget price, defined as (target price - current price)/current price.

STOCKSA rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates thatthe analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or3

Nomura | Nomura Japan Equity High Dividend 70 Market Neutral Index

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additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCIEmerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.

SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates thatthe analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.

Target Price
A Target Price, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part the analyst's
estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, andby other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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prices fluctuate in line with changes in market interest rates and fluctuations in the nationwide consumer price index.The notional principal of
inflation-indexed JGBs changes in line with the rate of change in nationwide CPI inflation from the time of its issuance. The amount of the
coupon payment is calculated by multiplying the coupon rate by the notional principal at the time of payment. The maturity value is the amountof the notional principal when the issue becomes due. For JI17 and subsequent issues, the maturity value shall not undercut the face amount.
Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.4% of the transaction
amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time of redemption.
Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an asset managementfee (trust fee) of up to 5.4% (annualized basis) of the net assets in trust, as well as fees based on investment performance. Other indirect costs
may also be incurred. For foreign investment trusts, indirect fees may be incurred during the course of holding such as investment company
compensation.
Investment trusts invest mainly in securities such as Japanese and foreign equities and bonds, whose prices fluctuate. Investment trust unit
prices fluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry
the risk of losses. Fees and risks vary by investment trust. Maximum applicable fees are subject to change; please thoroughly read the writtenmaterials provided, such as prospectuses or documents delivered before making a contract.
In interest rate swap transactions and USD/JPY basis swap transactions (“interest rate swap transactions, etc.”), only the agreed transaction
payments shall be made on the settlement dates. Some interest rate swap transactions, etc. may require pledging of margin collateral. In someof these cases, transaction payments may exceed the amount of collateral. There shall be no advance notification of required collateral value or
collateral ratios as they vary depending on the transaction. Interest rate swap transactions, etc. carry the risk of losses owing to fluctuations inmarket prices in the interest rate, currency and other markets, as well as reference indices. Losses incurred as such may exceed the value ofmargin collateral, in which case margin calls may be triggered. In the event that both parties agree to enter a replacement (or termination)transaction, the interest rates received (paid) under the new arrangement may differ from those in the original arrangement, even if terms otherthan the interest rates are identical to those in the original transaction. Risks vary by transaction. Please thoroughly read the written materials
provided, such as documents delivered before making a contract and disclosure statements.
In OTC transactions of credit default swaps (CDS), no sales commission will be charged. When entering into CDS transactions, the protection
buyer will be required to pledge or entrust an agreed amount of margin collateral. In some of these cases, the transaction payments may exceed
the amount of margin collateral. There shall be no advance notification of required collateral value or collateral ratios as they vary depending on
the financial position of the protection buyer. CDS transactions carry the risk of losses owing to changes in the credit position of some or all of
the referenced entities, and/or fluctuations of the interest rate market. The amount the protection buyer receives in the event that the CDS is
triggered by a credit event may undercut the total amount of premiums that he/she has paid in the course of the transaction. Similarly, theamount the protection seller pays in the event of a credit event may exceed the total amount of premiums that he/she has received in thetransaction. All other conditions being equal, the amount of premiums that the protection buyer pays and that received by the protection seller
shall differ. In principle, CDS transactions will be limited to financial instruments business operators and qualified institutional investors.

6Nomura | Nomura Japan Equity High Dividend 70 Market Neutral Index

15 November 2017

No account fee will be charged for marketable securities or monies deposited. Transfers of equities to another securities company via the Japan
Securities Depository Center are subject to a transfer fee of up to ¥10,800 per issue transferred depending on volume.

Nomura Securities Co., Ltd.
Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142)
Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association ofJapan; and Type II Financial Instruments Firms Association.
The Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but
not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls andemployee training.
Additional information regarding the methodologies or models used in the production of any investment recommendations contained
within this document is available upon request by contacting the Research Analysts listed on the front page. Disclosures information
is available upon request and disclosure information is available at the Nomura Disclosure web
page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
Copyright © 2017 Nomura Securities Co., Ltd. All rights reserved.

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