RESEARCHSPIVA

CONTRIBUTOR
Priscilla Luk
Senior Director
Global Research & Designpriscilla.luk@spglobal.com

SPIVA® Japan Scorecard
SUMMARYS&P Dow Jones Indices has been the de facto scorekeeper of theongoing active versus passive debate since the first publication of the
SPIVA U.S. Scorecard in 2002. Over the years, we have built on our
experience publishing the report by expanding scorecard coverage into
Australia, Canada, Europe, India, South Africa, Latin America, andJapan. While this report will not end the debate on active versus
passive investing in Japan, we hope to make a meaningful contribution
by examining market segments in which one strategy works better thanthe other.

The SPIVA Japan Scorecard reports on the performance of actively
managed Japanese mutual funds against their respective benchmark
indices over 1-, 3-, 5-, and 10-year investment horizons. In thisscorecard, we evaluated returns of more than 754 Japanese large- andmid/small-cap equity funds, along with more than 566 international
equity funds investing in global, international, and emerging markets, aswell as U.S. equities.



Domestic Equity Funds: The Japanese equity market rebounded in
the second half of 2016, erasing the losses recorded in the first six
months of the year. The majority of Japanese large- and mid/small-cap
equity funds suffered smaller losses than their benchmarks during themarket decline; however, they lagged the benchmarks when the market
rallied. Overall in 2016, 63.6% of Japanese large-cap funds and 54.6%
of Japanese mid/small-cap funds underperformed their benchmarks.
Over the 10-year horizon, more than 60% of Japanese large- andmid/small-cap equity funds underperformed their respective
benchmarks. Nevertheless, Japanese mid/small-cap funds delivered
returns above the benchmark on average over the 1-, 5-, and 10-year
horizons.

Experience the Active vs. Passive Debate on a Global Scale on INDEXOLOGY®.

SPIVA Japan Scorecard

Year-End 2016

Foreign Equity Funds: The majority of foreign equity funds had disappointing performance overthe 5- and 10-year periods, with over 90% of funds in foreign equity categories underperforming
their respective benchmarks. This trend continued in 2016; 90.1% and 88.7% of global andinternational equity funds, respectively, lagged their benchmarks while 82.9% and 61.3% of
emerging and U.S. equity funds, respectively, underperformed. All foreign equity fund categories
delivered lower-than-benchmark average returns across the 1-, 3-, 5-, and 10-year horizons.



Fund Survivorship: In 2016, Japanese equity funds had a survivorship rate of 96.3%, while foreign
equity funds had a lower rate of 94.4%, collectively. Among foreign equity funds, emerging market
funds had the lowest survivorship rate, at 93.4%. Over the 10-year horizon, 34.6% of Japanese
mid/small-cap equity funds and 27.9% of Japanese large-cap equity funds were liquidated. Foreign
equity funds tended to disappear at faster rates, with 4 out of 10 U.S. and emerging equity funds
liquidated in the past 10 years. International equity funds had the lowest liquidation rate (20.9%)
among all foreign equity fund categories.



Equal-Weighted Average Fund Returns: Although the majority of Japanese large- and mid/smallcap equity funds unperformed their benchmarks in 2016, Japanese large-cap equity funds only
lagged the S&P/TOPIX 150 by 91 bps on average, and the Japanese mid/small-cap equity fundcategory’s average return exceeded the S&P Japan MidSmallCap by 79 bps. In contrast, theaverage return of foreign equity funds in 2016 was much worse, with the equal-weighted average
returns of global, emerging, and international equity funds underperforming the S&P Global 1200,
S&P Emerging BMI, and S&P Global 1200 Ex Japan by 6.2%, 3.8%, and 3.5%, respectively.
Performance of U.S. equity funds was less unpleasant, with the average return lagging the S&P
500 by only 1.74%.



Asset-Weighted Average Fund Returns: All fund categories recorded lower asset-weighted
average returns than their equal-weighted counterparts for the majority of the periods studied (1, 3,
5, and 10 years), indicating that smaller funds tended to perform better than larger funds in thesame peer group. In 2016, the asset-weighted average returns of the Japanese mid/small-cap
equity funds and international equity funds lagged their equal-weighted average returns by morethan 200 bps.

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A UNIQUE SCORECARD FOR THE ACTIVE VERSUS PASSIVE DEBATE
There is nothing novel about the index versus active debate. It has been a contentious subject for
decades, and there are few strong believers on both sides, with the vast majority of market participants
falling somewhere in between. Since its first publication 14 years ago, the SPIVA Scorecard has
served as the de facto scorekeeper of the active versus passive debate. For more than a decade, wehave heard passionate arguments from believers in both camps when headline numbers have deviatedfrom their beliefs.
Beyond the SPIVA Scorecard’s widely cited headline numbers is a rich data set that addresses issues
related to measurement techniques, universe composition, and fund survivorship that are far lessfrequently discussed but are often far more fascinating. These data sets are rooted in the following
fundamental principles of the SPIVA Scorecard, with which regular readers will be familiar.
Survivorship Bias Correction: Many funds might be liquidated or merged during a period of study.
However, for someone making an investment decision at the beginning of the period, these funds
are part of the opportunity set. Unlike other commonly available comparison reports, SPIVA
Scorecards account for the entire opportunity set—not just the survivors—thereby eliminating
survivorship bias.

Apples-to-Apples Comparison: Fund returns are often compared with a popular benchmark
regardless of their investment category. The SPIVA Japan Scorecard makes an appropriatecomparison by measuring a fund's returns against the returns of a benchmark that reflects thefund’s investment category.



Asset-Weighted Returns: Average returns for a fund group are often calculated using only equal
weighting, which results in the returns of a JPY 10 billion fund affecting the average in the samemanner as the returns of a JPY 10 million fund. However, the SPIVA Japan Scorecard shows both
equal- and asset-weighted averages. Equal-weighted returns are a measure of average fundperformance, while asset-weighted returns are a measure of the performance of the average
invested dollar.



Data Cleaning: SPIVA Scorecards avoid double counting multiple share classes in all count-based
calculations, using only the share class with greater assets. Since this is meant to be a scorecard
for active managers, index funds, leveraged and inverse funds, and other index-linked products are
excluded.

Please note that neither S&P Dow Jones Indices, nor any of its affiliates make any assurance orprovide any investment recommendation on the appropriateness of investing in either index or active
investing. S&P Dow Jones Indices does not sponsor, endorse, sell, or promote any investment fund orother investment vehicle that is offered by third parties and that seeks to provide an investment return
based on the performance of any index. The SPIVA Japan Scorecard simply provides semi-annual
statistics according to the SPIVA methodology and a brief analysis of those statistics. Further, S&P
Dow Jones Indices does advise that anyone reading this report also read the SPIVA methodology inthe report in order to understand how the data was derived.

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REPORTS
Report 1: Percentage of Funds Outperformed by the Index
FUND CATEGORYCOMPARISON INDEXONE-YEAR (%)

THREE-YEAR (%) FIVE-YEAR (%) TEN-YEAR (%)

Japanese Large-Cap Funds

S&P/TOPIX 150

63.61

60.30

73.72

68.67

Japanese Mid/Small-Cap Funds

S&P Japan MidSmallCap

54.61

62.60

52.41

67.69

All Japanese Equity Funds

S&P Japan 500

58.20

62.88

69.33

69.06

U.S. Equity Funds

S&P 500

61.29

100.00

96.55

90.00

Global Equity Funds

S&P Global 1200

90.06

90.73

91.43

93.65

International Equity Funds

S&P Global 1200 Ex Japan

88.68

94.12

92.31

97.67

Emerging Equity Funds
S&P Emerging BMI
82.89
83.33
93.15
95.45
Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec. 31, 2016. Table is provided for illustrative purposes. Past performance isno guarantee of future results.
Report 2: Survivorship and Style Consistency of Japanese Equity Funds
FUND CATEGORY

NO. OF FUNDS AT STARTSURVIVORSHIP (%)

Japanese Large-Cap Funds

371

96.50

Japanese Mid/Small-Cap Funds

141

95.74

All Japanese Equity Funds

512

96.29

U.S. Equity Funds

93

95.70

Global Equity Funds

171

93.57

International Equity Funds

53

96.23

Emerging Equity Funds

76

93.42

Japanese Large-Cap Funds

335

88.66

Japanese Mid/Small-Cap Funds

131

88.55

All Japanese Equity Funds

466

88.63

U.S. Equity Funds

68

86.76

Global Equity Funds

151

82.12

International Equity Funds

51

92.16

Emerging Equity Funds

78

75.64

Japanese Large-Cap Funds

331

80.66

Japanese Mid/Small-Cap Funds

145

73.79

All Japanese Equity Funds

476

78.57

U.S. Equity Funds

29

72.41

Global Equity Funds

140

71.43

International Equity Funds

52

88.46

Emerging Equity Funds

73

64.38

Japanese Large-Cap Funds

316

72.15

Japanese Mid/Small-Cap Funds

130

65.38

All Japanese Equity Funds

446

70.18

U.S. Equity Funds

20

60.00

Global Equity Funds

63

63.49

International Equity Funds

43

79.07

ONE-YEAR

THREE-YEAR

FIVE-YEAR

TEN-YEAR

Emerging Equity Funds
22
59.09
Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec. 31, 2016. Table is provided for illustrative purposes. Past performance isno guarantee of future results.

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Report 3: Average Fund Performance (Equal-Weighted)
ONE-YEAR (%)

THREE-YEAR
ANNUALIZED (%)

FIVE-YEAR
ANNUALIZED (%)

TEN-YEARANNUALIZED (%)

S&P/TOPIX 150

-0.39

6.19

17.88

0.22

Japanese Large-Cap Funds

-1.30

6.23

17.40

0.22

S&P Japan MidSmallCap

3.65

10.46

19.66

2.80

Japanese Mid/Small-Cap Funds

4.44

10.22

22.30

3.49

S&P Japan 500

0.00

7.09

18.30

0.81

All Japanese Equity Funds

0.31

7.37

18.82

1.21

S&P 500

8.55

12.72

24.61

6.72

U.S. Equity Funds

6.81

5.65

18.32

3.75

S&P Global 1200

5.71

8.10

20.46

4.24

Global Equity Funds

-0.49

3.96

15.15

1.42

S&P Global 1200 Ex Japan

6.23

8.26

20.66

4.59

International Equity Funds

2.73

4.82

16.08

2.06

S&P Emerging BMI

7.91

2.43

11.49

2.60

Emerging Equity Funds

4.11

0.22

8.94

0.54

INDEX/PEER GROUP

Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec. 31, 2016. All returns in JPY. Table is provided for illustrative purposes.
Past performance is no guarantee of future results.
Report 4: Average Fund Performance (Asset-Weighted)
ONE-YEAR (%)

THREE-YEAR
ANNUALIZED (%)

FIVE-YEAR
ANNUALIZED (%)

TEN-YEARANNUALIZED (%)

S&P/TOPIX 150

-0.39

6.19

17.88

0.22

Japanese Large-Cap Funds

-1.48

5.96

16.90

0.35

S&P Japan MidSmallCap

3.65

10.46

19.66

2.80

Japanese Mid/Small-Cap Funds

2.10

6.76

18.93

1.78

S&P Japan 500

0.00

7.09

18.30

0.81

All Japanese Equity Funds

-0.60

6.15

17.27

0.61

S&P 500

8.55

12.72

24.61

6.72

U.S. Equity Funds

4.89

3.25

15.10

2.55

S&P Global 1200

5.71

8.10

20.46

4.24

Global Equity Funds

-1.70

4.60

14.27

1.16

S&P Global 1200 Ex Japan

6.23

8.26

20.66

4.59

International Equity Funds

0.37

4.33

15.23

2.33

S&P Emerging BMI

7.91

2.43

11.49

2.60

Emerging Equity Funds

6.02

-0.71

6.98

-0.51

INDEX/PEER GROUP

Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec. 31, 2016. All returns in JPY. Table is provided for illustrative purposes.
Past performance is no guarantee of future results.

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Report 5: Quartile Breakpoints of Fund Performance
FUND CATEGORY

THIRD QUARTILE

SECOND QUARTILE

FIRST QUARTILE

Japanese Large-Cap Funds

-3.95

-1.51

0.79

Japanese Mid/Small-Cap Funds

-1.53

3.19

8.57

All Japanese Equity Funds

-3.63

-0.76

2.65

ONE-YEAR

U.S. Equity Funds

0.06

6.36

13.43

Global Equity Funds

-2.39

-0.01

2.47

International Equity Funds

-1.77

0.14

1.96

Emerging Equity Funds

0.05

4.27

7.05

Japanese Large-Cap Funds

4.46

5.97

7.70

Japanese Mid/Small-Cap Funds

6.77

9.53

12.70

All Japanese Equity Funds

4.93

6.52

8.88

U.S. Equity Funds

3.79

7.10

8.85

Global Equity Funds

2.94

4.70

6.27

International Equity Funds

3.44

4.67

5.26

Emerging Equity Funds

-1.50

0.04

1.99

Japanese Large-Cap Funds

16.24

17.12

18.43

Japanese Mid/Small-Cap Funds

18.24

21.20

25.72

All Japanese Equity Funds

16.47

17.55

19.94

U.S. Equity Funds

19.94

21.49

22.74

Global Equity Funds

13.76

16.88

18.44

International Equity Funds

15.21

17.63

18.41

Emerging Equity Funds

7.99

9.04

10.37

Japanese Large-Cap Funds

-0.84

-0.05

1.10

Japanese Mid/Small-Cap Funds

0.92

2.77

5.81

All Japanese Equity Funds

-0.65

0.48

2.06

U.S. Equity Funds

4.33

5.29

6.36

Global Equity Funds

1.69

2.35

3.31

International Equity Funds

1.53

2.03

3.28

THREE-YEAR

FIVE-YEAR

TEN-YEAR

Emerging Equity Funds
-0.24
0.22
1.66
Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Dec. 31, 2016. All returns in JPY. Table is provided for illustrative purposes.
Past performance is no guarantee of future results.

APPENDIX A: GLOSSARYSPIVA Styles and Morningstar Fund Classifications
Data from Morningstar is obtained for all managed funds domiciled in Japan for which month-end data
is available during the performance period. The data includes the most comprehensive Japanese funddata on active and finalized (merged or liquidated) funds over the chosen period. Funds are classified
based on the Morningstar fund classification system, and the SPIVA Japan Scorecard covers Japaneseand international equity categories.

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Japanese Equity Funds
The SPIVA Japan Scorecard covers major capitalization levels including large-, mid-, and small-cap
funds. S&P Dow Jones Indices uses the Morningstar fund categories, which determine a fund
portfolio’s capitalization assignments.
The Morningstar classification system produces narrow, style-based classifications for Japaneseequities funds. S&P Dow Jones Indices has consolidated the style-based categories in order togenerate a larger sample size and develop a broad-market comparison to market-based benchmarks.
A narrow, style-based comparison would yield a limited sample size, given value and growth stylesegments are not consistently discernible over the past five years.
Morningstar categories have been mapped to SPIVA peer groups in the following manner.
Exhibit 1: Japanese Equity Funds: SPIVA and Morningstar Categories
SPIVA CATEGORYMORNINGSTAR CATEGORY
Japan Fund Japan Large-Cap Value Equity

Japanese Large-Cap Funds

Japan Fund Japan Large-Cap Growth Equity
Japan Fund Japan Large-Cap Blend Equity
Japan Fund Japan Small/Mid-Cap Value Equity

Japanese Mid/Small-Cap Funds

Japan Fund Japan Small/Mid-Cap Growth Equity
Japan Fund Japan Small/Mid-Cap Blend Equity

Source: S&P Dow Jones Indices LLC, Morningstar. Table is provided for illustrative purposes.

International Equity Funds
For international equity, the SPIVA Japan Scorecard reports on four major categories (U.S., global,
international, and emerging market funds) of interest to global asset allocators.
Morningstar categories have been mapped to SPIVA peer groups in the following manner.
Exhibit 2: International Equity Funds: SPIVA and Morningstar Categories
SPIVA CATEGORYMORNINGSTAR CATEGORY

U.S. Equity Funds

Japan Fund North America Equity

Global Equity Funds

Japan Fund World Equity

International Equity Funds

Japan Fund World ex-Japan Equity

Emerging Equity Funds

Japan Fund Emerging Multiple Country/Area Equity

Source: S&P Dow Jones Indices LLC, Morningstar. Table is provided for illustrative purposes.

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Benchmarks
The chosen benchmarks are shown in Exhibit 3. All index returns are total returns (i.e., include
dividend reinvestment) in Japanese yen. There has been no deduction from index returns to accountfor fund investment expenses. It is important to note that active fund returns are after expenses, butthey do not include loads and entry fees.
The benchmarks chosen are the most commonly adopted benchmarks for funds that fall into therespective fund peer groups. In some instances, a fund may not adopt the benchmarks stipulated in
Exhibit 3. However, a vast majority do set their performance hurdle based on the assigned
benchmarks in this report, ensuring that the study is robust and fair.
Exhibit 3: SPIVA Categories and Their Benchmarks
SPIVA CATEGORYBENCHMARK INDEXJapanese Large-Cap Funds

S&P/TOPIX 150

Japanese Mid/Small-Cap Funds

S&P Japan MidSmallCap

All Japanese Equity Funds

S&P Japan 500

U.S. Equity Funds

S&P 500

Global Equity Funds

S&P Global 1200

International Equity Funds

S&P Global 1200 Ex Japan

Emerging Equity Funds

S&P Emerging BMI

Source: S&P Dow Jones Indices LLC, Morningstar. Table is provided for illustrative purposes.

APPENDIX B: GLOSSARY
Percentage of Funds Outperformed by the Index
To correct for survivorship bias, we use the opportunity set available at the beginning of the period as
the denominator. We determine the count of funds that have survived and beat the index. We thenreport the index outperformance percentage.

Survivorship (%)
This measure represents the percentage of funds in existence at the beginning of the time period that isstill active at the end of the time period.

Equal-Weighted Fund Performance
Equal-weighted returns for a particular style category are determined by calculating a simple average
return of all active funds in that category in a particular month.

Asset-Weighted Fund Performance
Asset-weighted returns for a particular style category are determined by calculating a weighted average
return of all funds in that category in a particular month, with each fund's return weighted by its total net
assets. Asset-weighted returns are a better indicator of fund category performance because they moreaccurately reflect the returns of the total money invested in that particular style category.

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Quartiles Breakpoints
The pth percentile for a set of data is the value that is greater than or equal to p% of the data, but isless than or equal to (100-p)% of the data. In other words, it is a value that divides the data into twoparts: the lower p% of the values and the upper (100-p)% of the values. The first quartile is the 75th
percentile, the value separating the elements of a population into the lower 75% and the upper 25%.
The second quartile is the 50th percentile and the third quartile is the 25th percentile. For fundcategory quartiles in a particular time horizon, the data used is the return of the largest share class ofthe fund net of fees, excluding loads.

Survivorship Bias
Many funds might liquidate or merge during a period of study. This usually occurs due to continued
poor performance by the fund. Therefore, if index returns were compared to fund returns using only
surviving funds, the comparison would be biased in favor of the fund category. These reports remove
this bias by (a) using the entire investment opportunity set, made up of all funds in that particular
category at the outset of the period, as the denominator for outperformance calculations, (b) explicitly
showing the survivorship rate in each category, and (c) constructing peer average return series for eachcategory based on all available funds at the outset of the period.

Fees
The fund returns used are net of fees, excluding loads.

IndicesA benchmark index provides an investment vehicle against which fund performance can be measured.

S&P/TOPIX 150
The S&P/TOPIX 150 is designed to represent the large-cap universe for Japan. It includes 150 highly
liquid securities as leading, blue-chip companies from each of the Global Industry Classification
Standard (GICS®) sectors of the Japanese market.

S&P JAPAN MIDSMALLCAPThe S&P Japan MidSmallCap combines the S&P Japan MidCap and S&P SmallCap indices andcomprises the stocks representing the lowest 30% of float-adjusted market cap in Japan. It is a subsetof the S&P Japan BMI, comprehensive, rules-based index measuring Japanese stock market
performance.

S&P JAPAN 500
The S&P Japan 500 is designed to represent the Japanese investable market. Index constituents are
drawn from eligible companies listed on the Tokyo, Osaka, or JASDAQ exchanges. Data is sourced
from the comprehensive Toyo Keizai database. Constituents represent the large-, mid-, and small-cap
components of the Japanese equity markets.

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S&P 500
Widely regarded as the best single gauge of the U.S. equities market, this market-capitalizationweighted index includes a representative sample of the top 500 companies in the leading industries of
the U.S. economy, and it provides over 80% coverage of U.S. equities.

S&P GLOBAL 1200
Capturing approximately 70% of the world’s capital markets, the S&P Global 1200 is a composite ofseven headline indices, many of which are accepted leaders in their regions. It includes the S&P 500(U.S.), S&P Europe 350 (Europe), S&P/TOPIX 150 (Japan), S&P/TSX 60 (Canada), S&P/ASX All
Australian 50 (Australia), S&P Asia 50 (Asia Ex-Japan), and S&P Latin America 40 (Latin America).

S&P GLOBAL 1200 EX JAPANThe S&P Global 1200 Ex Japan is a composite of six headline indices, many of which are accepted
leaders in their regions. It includes the S&P 500 (U.S.), S&P Europe 350 (Europe), S&P/TSX 60(Canada), S&P/ASX All Australian 50 (Australia), S&P Asia 50 (Asia Ex-Japan), and S&P Latin America
40 (Latin America).

S&P EMERGING BMIThe S&P Emerging BMI captures all companies domiciled in the emerging markets within the S&P
Global BMI with a float-adjusted market capitalization of at least USD 100 million and a minimum
annual trading liquidity of USD 50 million.

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S&P DJI Research Contributors
NAME

TITLE

EMAIL

Charles “Chuck” Mounts

Global Headcharles.mounts@spglobal.com

Aye Soe, CFA

Americas Headaye.soe@spglobal.com

Dennis Badlyans

Associate Director

dennis.badlyans@spglobal.com

Phillip Brzenk, CFA

Directorphillip.brzenk@spglobal.com

Smita Chirputkar

Directorsmita.chirputkar@spglobal.com

Rachel Du

Senior Analyst

rachel.du@spglobal.com

Qing Li

Associate Director

qing.li@spglobal.com

Berlinda Liu, CFA

Director

berlinda.liu@spglobal.com

Ryan Poirier, FRM

Senior Analyst

ryan.poirier@spglobal.com

Maria Sanchez

Associate Director

maria.sanchez@spglobal.com

Kelly Tang, CFA

Directorkelly.tang@spglobal.com

Peter Tsui

Director

peter.tsui@spglobal.com

Hong Xie, CFA

Directorhong.xie@spglobal.com

Priscilla Luk

APAC Headpriscilla.luk@spglobal.com

Utkarsh Agrawal, CFA

Associate Director

utkarsh.agrawal@spglobal.com

Liyu Zeng, CFA

Directorliyu.zeng@spglobal.com

Akash Jain

Associate Director

akash.jain@spglobal.com

Sunjiv Mainie, CFA, CQF

EMEA Headsunjiv.mainie@spglobal.com

Global Research & Design

Daniel Ung, CFA, CAIA, FRM Director

daniel.ung@spglobal.com

Andrew Innes

Senior Analyst

andrew.innes@spglobal.com

Craig Lazzara, CFA

Global Headcraig.lazzara@spglobal.com

Fei Mei Chan

Director

feimei.chan@spglobal.com

Tim Edwards, PhD

Senior Director

tim.edwards@spglobal.com

Howard Silverblatt

Senior Industry
Analysthoward.silverblatt@spglobal.com

Anu Ganti

Directoranu.ganti@spglobal.com

Index Investment Strategy

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