Doubling Up On Momentum

15 April 2014
GLOBAL MARKETS
RESEARCH
Global Quantitative Research Monthly
Doubling up on Momentum
Value strategy in rates
Position unwinding in Japan
See Appendix A-1 for analyst

certification, important
disclosures and the status of
non-US analysts.
Nomura | Global Quantitative Research Monthly
15 April 2014
Content
Page
Chapter I
Doubling up on momentum. This is not 2009 (or 2000)
The sharp style moves seen in Europe, the US and globally since 21 March have seen Momentum sell off by 7%, 5% and
6% respectively to the close of Monday 14 April. These are very large moves. With Momentum having now given up all of
its gains since we went long the style in early January, our call to be long Momentum in Europe and globally is losing
money.
As a result of the recent moves, the style is now cheaper than it has ever been before. In Europe, the high-momentum
stocks are now trading at a 27% discount to the low-momentum stocks this is unprecedented. Globally, the winner
stocks are also trading at historical lows. Previous sustained Momentum sell-offs have always happened from much
higher multiples.
We consider several explanations that we have heard proposed for the recent moves, including the Nasdaq sell-off,
various macro triggers, an EM-driven rotation and fund delevering. Although we think these have some merit, none
seems to offer a compelling or complete explanation, nor a reason for these style trends to continue.
We see recent underperformance of Momentum as a buying opportunity both in Europe and globally. We are doubling up
our position in Momentum in our Global Recommended Quant Portfolio.
Alla Harmsworth
Chapter II
Of bonds and bubbles value outperforms in rates, as in equities
14
Value investing is nothing new. Especially in equities, value investing is among the oldest and most well-known strategies.
As early as 1934, Benjamin Graham and David Dodd spelt out the principles of value investing in their text 'Security
Analysis'. Academics such as Eugene Fama and Kenneth French have also studied value formally. For example, Fama &
French (1992) used value as part of their three-factor model of stock returns. Legendary investors like Warren Buffett and
Seth Klarman famously use the principles of value to guide their investment decisions.
In this article, we focus on value in interest rates. We find that using techniques fundamentally similar to those used in
equities can help rates investors identify value across both curves and currencies. We discuss the following points:
Value exists in both equities and interest rates.
Carry in interest rates is analogous to earnings yield (E/P) in equities. Just as stocks with high earnings yield outperform
those with low earning yield, curve points with high carry outperform those with low carry.
Comparing earnings yield both relative to its own history (time-series) and across stocks (cross-sectional) is important to
place current valuations in context. Similarly, comparing carry on both time-series and cross-sectional basis is key.
A long/short value strategy in rates outperforms a long-only benchmark. Being free to trade the best points of value
across curves and currencies, without constraining the strategy to hold pre-specified pairs, can help make the strategy
robust.
Bubbles develop gradually, be it in equities or rates. Equities and rates do not sell off when they are cheap crashes
occur in the context of stretched valuations. Value-signals can help track a build-up in overvaluation and identify when selloffs in rates are more likely.
A long-only version of the value strategy outperforms a long-only benchmark on a duration-matched basis. By going long
the cheapest curve points across countries, the strategy beats a static benchmark that holds the entire market.
A short-only version of the value strategy can help hedge rising rates. It can also be cheaper than being the short the
entire market as it identifies the most expensive points to be short rather than shorting all points.
Value can outperform when Momentum suffers. Momentum tends to underperform when rates are close to zero and
markets range-bound. In such trendless conditions, value or mean-reversion trades tend to outperform.
Anthony Morris
Chapter III
Concentrated position unwinding on 24 March
28
From 24 March 2014 through the mornings trading session on 25 March, actively managed Japanese equity funds faced
a relatively strong headwind, especially in large cap universes. Strategies based mainly on analyst earnings forecastrelated factors and stocks with high active-fund ownership ratios produced negative returns of less than -3% over this
period. It is highly probable that, for some reason, there was a concentrated spate of selling for position unwinding
purposes by active funds on those two days. The sell-off appears to have come to an end before the start of the afternoon
trading session on 25 March, but we think there is still a need for caution.
We all remember the 'quant headwind' in August 2007, when selling pressure was similarly concentrated on certain
investment styles, such as E/P-based factors, and the performance of a number of factors plummeted at the same time in
multiple markets around the world. This time around, however, we think the sell-off was not because of the unwinding of
positions by global funds but the selling by Japanese active pension funds.
While it is difficult to pinpoint the reasons for selling by Japanese active pension funds, we think investors need to be
aware of the possibility of a similar thing happening again. One reason for this view is that the dissolution of employee
pension funds (EPFs) is about to take off on a large scale. Whether or not what happened on 2425 March was linked to
the return to the state of the substitutional portions of EPFs, the risk remains that a similar thing could happen again. A
positive way of looking at what happened on 2425 March would be to say that it has served as 'disaster training' in
preparation for the risk of future unwinding of pension fund positions.
Based on this view, we would like to stress the importance of avoiding stocks that are the object of herding by active
funds. For example, if we assume that there is a substantial unwinding risk for stocks in which only domestic pension
funds are substantially overweight, then avoiding these stocks is likely to be an effective strategy. This kind of strategy
would have performed well from mid-January 2014, and would have generated positive returns without suffering a
negative impact on 24 March 2014.
Akihiro Murakami
Appendix
42
15 April 2014
Foreword
We usually like to take a longer-term view in these notes, but occasionally events take
over. On Monday 14 April, Momentum suffered a 2.6% intra-day fall in Europe, a 2.6
standard deviation move. 1
Several aspects of this move are remarkable: both sector-neutral and non-sector-neutral
Momentum suffered falls of a similar size. It has occurred without a clear index-level
impact (the market has been both up and down over the course of the three-week move,
and even over the course of the day on 14 April). It also has happened without an
obvious fundamental catalyst.
Conversations with clients have been focused on this issue for several weeks now. The
Momentum sell-off is causing particular pain in levered market-neutral strategies, and
this seems to be especially the case in those with shorter holding periods where
momentum is used particularly often. The impact on long-only investors has been more
muted.
Although a move of the size of 14 April probably has to be caused by fund de-levering,
the ultimate cause is hard to pin down and, we suspect, may be the result of several
forces. What we do know is that it leaves Momentum more cheaply valued than it was
before. We upgraded our view on Momentum globally on 7 January 2014. As a result,
we have to be humble here as we have lost money for three weeks. However, with
Momentum now trading cheaper than it ever has done before in 25 years in Europe, we
think this presents an opportunity. This is not 2009 or 2000, periods when Momentum
sold off in a sustained way because on both those occasions the factor was (very)
expensive. As a result, we double our position in Momentum. The first section of this
note explores this recent fall and explains the upgrade.
At the same time as the Momentum sell-off in the US and Europe there has been a large
factor move in Japan that has also caused severe dislocation to some funds again both
quant and non-quant. Another section of this note discusses this move in detail. We think
that ultimately it is unrelated to the move in the other regions, and is probably led by the
unwinding of domestic pension funds, but that means that such a move could potentially
occur again.
This month we also have a piece that takes a longer term view of value in a cross-asset
sense by applying it to rates as well as equities at the index level. We show how a longshort value strategy within rates outperforms a long-only benchmark; we also show a
long-only version of the strategy that also outperforms on a duration-matched basis.
Inigo Fraser Jenkins
At least assuming a normal distribution, which it is not
15 April 2014
Doubling up on momentum; this is not

2009 (or 2000)
The sharp style moves seen in Europe, the US and globally since 21 March have seen
Momentum sell off by 7%, 5% and 6% respectively to the close of Monday 14 April.
These are very large moves. With Momentum having now given up all of its gains since
we went long the style in early January, our call to be long Momentum in Europe and
globally is losing money.
Alla Harmsworth NIplc

alla.harmsworth@nomura.com
+44 20 7102 2219
Inigo Fraser Jenkins - NIplc
inigo.fraserjenkins@nomura.com
+44 20 7102 4658
As a result of the recent moves, the style is now cheaper than it has ever been before.
In Europe, the high-momentum stocks are now trading at a 27% discount to the lowmomentum stocks this is unprecedented. Globally, the winner stocks are also
trading at historical lows. Previous sustained Momentum sell-offs have always
happened from much higher multiples.
Gerard Alix Guerrini - NIplc

gerard.guerrini@nomura.com
+44 20 7102 5079
We consider several explanations that we have heard proposed for the recent moves,
including the Nasdaq sell-off, various macro triggers, an EM-driven rotation and fund
delevering. Although we think these have some merit, none seems to offer a compelling
or complete explanation, nor a reason for these style trends to continue.
We see recent underperformance of Momentum as a buying opportunity both in Europe
and globally. We are doubling up our position in Momentum in our Global
Recommended Quant Portfolio.
The mysterious rotation

The factor moves we have seen over the past three weeks in Europe and the US have
been sharp and, to most people we have spoken with, very unexpected. The rotation in
particular, the sell-off of Momentum in both regions and the rally in Value, which was
particularly strong in the US was especially surprising because it seemed to have no
obvious catalyst, and initially unfolded against the background of broadly flat markets
and reasonably unexciting (in either direction) corporate and macro newsflow.
Fig. 1: US Momentum and Value
105
31 Dec 13 = 100
104
Fig. 2: European Momentum and Value
Composite Momentum
SN Composite Momentum
106
Composite Value
SN Composite Value
105
104
103
110
Composite Momentum
Composite Value
SN Composite Value
101
100
102
104
101
102
100
99
99
98
98
97
97
21-Jan-14
11-Feb-14
04-Mar-14
Source: Nomura Quantitative research 2
25-Mar-14
96
31-Dec-13
31 Dec 13 = 100
108
Composite Momentum
Composite Value
SN
Composite Value
106
103
102
96
31-Dec-13
31 Dec 13 = 100
Fig. 3: Global Momentum and Value
100
98
96
21-Jan-14
11-Feb-14
4-Mar-14
25-Mar-14
Source: Nomura Quantitative research
94
31-Dec-13
21-Jan-14
11-Feb-14
4-Mar-14
25-Mar-14
The moves started in early March, but intensified towards the end of the month, with
Momentum falling by 100bp and 190bp, respectively, in Europe and the US in the last
week of March alone. Strikingly, the winners were also sold off within sectors, ie, on a
sector-neutral as well as a market-wide basis (Figs. 1 - 3). Value performed well at the
same time, although it outperformed significantly more in the US than it did in Europe,
delivering a 2.9% return compared with Europes more modest 60bp.
. Long-short returns of factors by region. Value is defined as an equally weighted

combination of price/book, trailing dividend yield and 12-month forward P/E. Momentum
is defined as an equally weighted combination of a simple 12-month price momentum
and the percentage change over the past two quarters in average consensus 12-month
forward earnings estimates. The baskets are rebalanced quarterly.
15 April 2014
Fig. 4: European Factor performance

110
31 Dec 2013 = 100
108
Fig. 5: Global Factor performance
Composite Growth
Composite Quality
Composite Risk
Size
106
31 Dec 2013 = 100
Composite Growth
Composite Quality
Composite Risk
Size
104
106
102
104
102
100
100
98
98
96
96
94
31-Dec-13
14-Jan-14
28-Jan-14
11-Feb-14
25-Feb-14
11-Mar-14
25-Mar-14
8-Apr-14
Source: Nomura Quantitative research. Risk is defined as an equally weighted

combination of standard deviation of returns, earnings expectations and beta. Growth
is defined as an equally weighted combination of Internal Growth, five-year consensus
expected growth rate and three year forward growth rate. Quality is defined as an
equally weighted combination of ROE, credit rating, tax/pre-tax income, EBITDA
margin and change in the number of shares. The baskets are rebalanced quarterly.
94
31-Dec-13
14-Jan-14
28-Jan-14
11-Feb-14
25-Feb-14
11-Mar-14
25-Mar-14
8-Apr-14
The broad indices, confusingly, were flat at the same time, and there was also a lack of a
clear pattern in terms of the performance of other factors or sectors that would have
helped interpret the moves in Value and Momentum. The Value rally would normally
signify a pro-cyclical bounce yet in the US, where Value rallied the most, Risk
underperformed slightly at the same time, while Quality outperformed. At the sector level,
the better performers at the time were a mixture of Financials, some non-commodity
cyclicals, Energy and classic defensives, such as Telecoms and Staples. In Europe,
performance of other factors and of sectors was similarly mixed.
After the initial bout of sharp declines, Momentum had something of a rebound the
following week, only to sell off again, and more sharply, the week after. Monday April 14
saw further large moves with Momentum falling by 3% and 1% intra-day in Europe and
globally. One difference between the two episodes of underperformance was that the
second time around, markets were down too, both in Europe and the US. At the sector
level, things also felt more obviously defensive than in late March. Staples and Utilities
rallied along with Energy, while most cyclicals did badly. Importantly, Financials also
underperformed last week, in contrast with what happened in March. The broader
decline in sentiment in the past week was reflected in our Composite Sentiment
Indicator, which has just moved to levels indicating weak sentiment, having fallen to the
lowest it has been since November 2012. That said, on Monday 14 April the day that
saw some of the sharpest intra-day moves since the rotation started three weeks ago
markets were broadly flat overall.
Unsurprisingly, a number of fund managers have told us that they suffered losses in
recent weeks. The underperformance has been most painful for some levered marketneutral funds both fundamental and quant. Even for those who did not lose money,
these recent moves have been a major focus and a source of concern, and
understandably so. A Momentum sell-off is always a worrying event because (and this is
one reason why so many investors are so uncomfortable with it) when Momentum
investing goes wrong, it can go very wrong. An (admittedly extreme) example is 2009,
when the strategy lost all the gains it had made in the previous decade within months.
We explain below, however, that we think there is a crucial difference between the factor
now and in the periods preceding any meaningful draw-downs in the factor in the past 25
years that difference is valuations. With Momentum currently trading at literally
unprecedented lows, we do not expect a sustained sell-off in high-momentum names
historically, these have always happened when these names were very significantly
more expensive than they are now.
A number of explanations for the recent factor moves have been put forward. In the rest
of this note we discuss the ones we have heard most often. We think that, although
some of them may have some merit, none offer a convincing enough explanation for the
moves, nor do they give a reason to expect these style trends to continue. We see
recent underperformance of Momentum as a buying opportunity on a three-month view
and beyond, and are doubling up our position, both in Europe and globally.
15 April 2014
A Macro catalyst?
The first obvious place to look for an explanation of a sharp factor rotation like this is a
macro-related catalyst. It is possible that some of the move in early March was indeed
caused by changes in macroeconomic sentiment. Figs. 6 and 7 show that the initial selloff in Momentum and the outperformance of Value in the US in March was accompanied
by a rising Economic Surprise Indicator, which has recently tended to be positively
correlated with Value and negatively with Momentum. In Europe, there has been
something of a positive relationship between macro sentiment at least on this measure
and the performance of Momentum, and the late-March Momentum underperformance
did indeed coincide with a decline in the surprise index there (Fig 8). (The relationship of
the indicator with Value in Europe is less clear (Fig. 9).)
Fig. 6: US Macro and Momentum performance
62
Index
Fig. 7: US Macro and Value performance

Index
reversed
-1.5
118
Index
Index
1.5
US Value performance (LHS)
61
-1.0
60
-0.5
116
1.0
US Economic Surprise Index (RHS)
114
0.5
112
59
0.0
0.0
110
US Momentum performance (LHS)
58
0.5
-0.5
108
US Economic surprise index (RHS, reverse)

57
56
Jan-14
Feb-14
Mar-14
-1.0
1.0
106
1.5
104
Jan-14
Apr-14
-1.5
Feb-14
Mar-14
Fig. 8: European Macro and Momentum performance
Fig. 9: European Macro and Value performance
101
Index
Index
100
1.4
194
1.2
192
1.0
99
0.8
98
0.6
97
0.4
96
95
94
93
Jan-14
0.2
Europe Momentum performance (LHS)
Europe Economic Surprise Index (RHS)
Feb-14
Mar-14
Apr-14
Index
Apr-14
Index
Europe Value performance (LHS)
1.4
1.2
Europe Economic Surprise Index (RHS)
190
1.0
188
0.8
186
0.6
184
0.4
182
0.2
180
0.0
178
0.0
-0.2
176
-0.2
-0.4
174
Jan-14
-0.4
Feb-14
Mar-14
Apr-14
It is conceivable that in the US, the improving macroeconomic sentiment through March
was at least partially responsible for the boost to value stocks as they are more procyclical (through their greater exposure to Financials) while hurting Momentum through
its greater exposure to more stable growth sectors, which tend to do best when the
economy peaks or starts to slow. In Europe, if Momentum suffered from a decline in
macroeconomic sentiment that is suggested by the Economic Surprise series, it would
have been through its short side, ie, its large underweight in the defensive sectors,
which did well at the time (see Fig. 10 for the sector composition of Momentum in the
US and Europe). However, as we mentioned above, other sector moves were far too
mixed for us to believe that these style moves were entirely macro-driven. Besides, this
measure of macro sentiment does not help explain the second phase of the Momentum
sell-off, with the surprise indicators in both regions either moving in the wrong direction
or by insufficient amounts at the time.
More generally, recent macroeconomic data and newsflow seem to have been broadly
benign or neutral in both regions. The ECB indicated on Thursday 3 April that the
possibility of QE was unlikely to have a large impact at the point of the announcement,
15 April 2014
given that QE would be unlikely to happen unless and until European macro data get a
lot worse. In the US, some positive labour market data have been indicating that the
impact of bad weather on the economy is largely over but again this hardly seems
sufficient to have triggered the sudden and large-scale moves that have taken place.
One specific macro event that we have often heard mentioned in connection with the
initial moves of late March is Janet Yellens speech on 18 March. Again, we do not think
this holds a clue to what unfolded. The Value rally and the Momentum sell-off did not
gather pace until about three days after the hawkish speech was delivered. Further, her
second, doveish correcting speech did not prevent the second phase of
underperformance so the first one seems to have been an unlikely trigger to begin
with.
In conclusion, there seems to have been no obvious macro-related cause for the style
moves of the past three weeks. This is not to say that the moves were entirely unrelated
to the macroeconomic environment only that no particular aspect of it seems to offer
an explanation for their sharpness and suddenness, or gives a reason to expect these
moves to persist.
The US new economy profit taking

The sell-off in the US Tech and Biotech stocks which have corrected sharply in the
past few weeks is another commonly cited reason for the Momentum correction that
we have been hearing. Again, this may have been a contributing factor both directly, in
so far as the Momentum baskets are exposed to the Tech/Biotech names that have sold
off, and indirectly through potentially causing a ripple of profit-taking behaviour in other
sectors and stocks that make up the style.
Momentum has a positive weight in Technology both in Europe and the US although
currently considerably more so in the US (Fig. 10). Furthermore, within Tech, the style is
net long Internet stocks (with 1.5% exposure in the US and 1% in Europe), which had
seen a substantial run in performance prior to March (Figs. 11 and 12). Momentum is
also exposed to Biotech, with a net 3.8% weight in the subsector in the US and a 3%
weight in Europe. This is hardly surprising considering the dizzying performance the
sector has delivered over the past couple of years.
Both Biotech and Internet stocks have declined sharply in the US in recent weeks, down
10% and 8%, respectively, during March; both also fell further in the first week of April.
The timing of the brunt of the sell-off in March did loosely (though not precisely) coincide
with the timing of the Momentum sell-off.
Fig. 10: Composite Momentum net sector exposure, % (long - short)
30%
Europe
US
20%
10%
0%
-10%
-20%
-30%
Basic
Industries
Capital
Goods
Consumer Consumer
Cyclicals
Staples
Energy
Financials Healthcare
Media
Technology Telecoms
Utilities
15 April 2014
Fig. 11: US Biotech and Internet performance

400
Fig. 12: European Biotech and Internet performance

Index
700
Dec 08 = 100
Europe Internet (LHS)
350
US Biotech
300
Europe Biotech (RHS)
Index
250
600
US Internet
200
500
250
150
400
200
300
150
100
200
100
50
100
50
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
0
Dec-08
Dec-13
0
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Fig. 13: US Biotech price to book

9
8
7
6
5
4
3
2
May-03
May-04
May-05
May-06
May-07
May-08
May-09
May-10
May-11
May-12
May-13
However, in Europe, the sell-off in the (tiny in size) Biotech sector was much more
modest in magnitude, with the sector falling by 3% during March compared with 10% in
the US; furthermore, the two or three stocks in Europe in the Internet subsector actually
rose during March, with some of the bigger gains occurring just as Momentum was
suffering towards the end of the month. So this particular explanation does not seem to
offer much insight into what has gone on in Europe.
Even in the US, the overall exposure of the Momentum basket to Biotech and parts of
Tech that may still be vulnerable to further correction seems far too small for the
performance of the overall style to be dominated by these stocks.
The Tech/Biotech unwinding may have also been having an indirect effect on Momentum
by encouraging a bout of profit-taking to take place in other sectors, both in the US and
in Europe. Almost tautologically, given that we are talking about a Momentum correction,
there has been something of a tendency to sell whatever has gone up the most across
sectors, as shown in Fig. 14, which plots the European sector relative performance since
21 March, when the moves started, against their performance since the beginning of last
year. Wider profit-taking behaviour is also evidenced by the fact that, as we mentioned
above, the style has corrected on a sector-neutral as well as a market-wide basis that
is, winners have also been sold off within each broad sector.
15 April 2014
Fig. 14: European sector relative performance since Dec 2012 and 21 March 2014, %
Since Dec 2012
Since 21 March
ENERGY
BASIC INDUSTRIES
CONSUMER STAPLES
TELECOMS
CAPITAL GOODS
HEALTHCARE
CONSUMER CYCLICALS
UTILITIES
TECHNOLOGY
FINANCIALS
MEDIA
-30%
-20%
-10%
0%
10%
20%
30%
Will this continue to affect the style? For one thing, the profit-taking behaviour is likely to
have been exacerbated by concern regarding the forthcoming earnings season, which in
the US has been precipitated by fairly gloomy company guidance and a sizeable
downward adjustment in earnings expectations for US stocks in recent weeks. We think
that, as the earning season gets underway, this effect will diminish in importance, with
any potential negative surprises for the high-performing stocks largely priced in. In
Europe, investors have also been increasingly conscious of the need to see hard
evidence of positive earnings growth emerging in order for equities to continue to
perform so there is much at stake when 1Q reporting starts, and this may have
contributed to the more defensive sentiment and profit-taking in the market. Despite
some concerns regarding the impact of the currency on earnings, however, most
investors, like us, seem to expect 1Q reports in Europe to be positive.
There is much more to Momentum globally than the expensive Internet and Biotech
stocks that are being sold off as evidenced not just by the straightforward read of the
sector composition of the baskets, but also by the fact that the overall style on both sides
of the Atlantic is now exceptionally cheap as we show below. We think that this should
support the performance of the factor, even if the unwinding of some expensive parts of
the market were to persist.
15 April 2014
Emerging markets
The past two weeks have seen investors channel funds into emerging markets (EM) for
the first time in six months. This is a significant event given how extreme the negative
sentiment towards EM became in the past few months (indeed this extreme pessimism
regarding EM, which manifested itself in a rare double redemption of funds both from
the dedicated GEM funds and the total of individual EM country funds, prompted us to go
long EM earlier this year (see Taking a long EM position, 4 February 2014). A number of
our clients have wondered whether the recent style rotation may have somehow been
connected with this change in sentiment towards EM.
Fig. 15: Flows into GEM funds, USD m
USD million
4000
2000
0
-2000
-4000
-6000
-8000
23-Oct-13
23-Nov-13
23-Dec-13
23-Jan-14
23-Feb-14
23-Mar-14
If there is a link between the improving sentiment towards EM assets and the relative
performance of styles in the US and Europe, we would expect this relationship to play
out via the domestically listed (ie, US and European) stocks with exposure to EM. In
Figs. 16-19 we look at the recent relationship between the daily relative returns of the
EM-exposed basket of stocks and the performance of Value and Momentum, in Europe
and the US.
European EM-exposed stocks indeed seem to have done well since mid-March,
outperforming the market by over 200bp, while Value did well and Momentum fell. This
relationship is in line with recent history over the past year or so, the relative
performance of the EM-exposed stocks has been positively correlated with the
performance of Value in Europe, and negatively (if weakly) with the performance of
Momentum.
Fig. 16: Relative performance of European stocks with EM
exposure and the performance of Momentum
May 13 = 100
108
Europe Momentum
106
Europe stocks with EM exposure, RHS (reversed)
May 13 = 100
93
95
104
102
May 13 = 100
100
Europe Value
Europe stocks with EM exposure, RHS
115
99
98
105
97
100
96
95
95
103
90
94
105
85
May-13
99
98
96
101
94
92
90
May-13
May 13 = 100
120
110
97
100
Fig. 17: Relative performance of European stocks with EM

exposure and the performance of Value
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
93
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
10
15 April 2014
What about the US? As we would expect, with US companies in aggregate much less
exposed to EM than companies in Europe, these stocks do not appear to have moved
much in response to the resumption of flows into EM and the relationship between their
relative performance and style performance has been weak or non-existent, both in the
past year and over the longer term. In particular, there has been a zero correlation
between the relative performance of the EM-exposed basket in the US and the
performance of Value over the past year or so, and a positive though not very strong
relationship between the EM-exposed basket and Momentum. Certainly, there was not a
sufficient move in these stocks in the past two or three weeks that could explain the large
drop in Momentum that we saw.
Fig. 18: Relative performance of US stocks with EM exposure
and the performance of Momentum
May 13 = 100
110
US Momentum
Fig. 19: Relative performance of US stocks with EM exposure

and the performance of Value
May 13 = 100
112
US stocks with EM exposure
US Value
US stocks with EM exposure
110
108
108
106
106
104
104
102
102
100
98
May-13
100
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
98
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
What do we conclude from all this? In Europe, the EM-exposed stocks have
underperformed over the past year so in so far as some of these stocks have become
very cheap and ended up populating the Value basket, their outperformance when the
region started to benefit from inflows benefitted the performance of Value. Conversely,
Momentum may have been short some of these names, so their outperformance may
have hurt it. But with style constituents constantly changing, the relationship between
EM-exposed assets and style performance has been neither strong nor stable enough
historically for us to expect this effect to persist even though we do believe that the
positive flows into the region may be sustained. Moreover, the EM effect does not shed
any light on what has gone on in the US which, again, calls into question how
important it could have been in Europe given the synchronicity of the style moves in the
two regions.
Japan: a separate case

Japan has also seen some sizeable style moves over the past couple of weeks, but both
their direction and drivers have, as is usual for this market, been very different and
largely unrelated to what went on in the US and Europe. Specifically, there was a
concentrated unwinding of positions by active funds on 24 March, covered in detail in the
recent work by our Japan Quant team (see Concentrated position unwinding on 24
March 2014, 28 March 2014), which thinks that the selling was coming from the
Japanese active pension funds rather than global funds. In the two days that followed,
there was strong underperformance of parts of Value (low P/E stocks in particular sold
off strongly, in contrast to what we were seeing in the US and Europe around the same
time) and Growth and Momentum also underperformed. Interestingly, Momentum went
on to rebound in the days that followed to a greater extent than Value again in contrast
to what happened in the US and Europe.
11
15 April 2014
Fig. 20: Japan factor performance

104
31 Dec 13 =100
102
100
98
96
94
92
90
31-Dec-13
Momentum (Non Sector Neutral)

Momentum (Sector Neutral)
Value (Sector Neutral)
Value (Non Sector Neutral)
14-Jan-14
28-Jan-14
11-Feb-14
25-Feb-14
11-Mar-14
25-Mar-14
Our Japan quant team argues that, although it is difficult to pinpoint the reasons for the
concentrated selling on those days, investors need to be aware of the possibility of the
same thing happening again. The dissolution of employee pension funds (EPFs) is about
to take place on a large scale and, whether or not what occurred at the end of March is
linked directly to this process starting, the risk remains that a similar thing could happen
again. Domestic pension fund portfolios tend to be tilted toward Value factors, so the
longer-term effect of this is likely to be favourable for Momentum, Growth and
Profitability-related measures and negative for the efficacy of Value in Japan a factor
that, historically, has performed the best there. Although the process is likely to be
gradual, it would mean profound changes for quant investing in Japan.
Doubling up on Momentum
None of the explanations that have been put forward to explain recent style moves give
us sufficient reasons to expect further underperformance from here. In fact, the sell-off
motivates us to double the size of our position, both in Europe and globally. The factor
was already trading at historical lows, and valuations have now become much more
extreme after the recent rebalancing of the Momentum constituents and taking recent
moves into account, Momentum in Europe has become even cheaper, with the highmomentum stocks trading at a 27% discount to low-momentum stocks on a price/book
basis. For winners to trade at a discount to the losers is a highly unusual event by the
very construction of the style, and has happened on only another two occasions in the
past 25 years. A discount of this size, is, simply put, unprecedented.
Globally, the factor is also very cheap, with the high-momentum stocks trading at a
premium to low-momentum stocks, which is very low by historical standards. Figs. 21
and 22 show the valuation of Momentum historically, with the dots denoting the latest
valuations based on the new 2Q constituents and taking into account the factors
performance to the close of Monday 14 April.
12
15 April 2014
Fig. 21: European Composite Momentum, price to book

5.0
Fig. 22: Global Composite Momentum, price to book

4.0
4.5
3.5
4.0
3.0
3.5
2.5
3.0
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
Jan-90
Jan-93
Jan-96
Jan-99
Jan-02
Jan-05
Jan-08
Jan-11
Jan-14
Source: Nomura Quantitative research. Figure shows price/book of the top quartile of
stocks on our Composite Momentum measure relative to the bottom quartile of stocks.
0.0
Jan-90
Jan-93
Jan-96
Jan-99
Jan-02
Jan-05
Jan-08
Jan-11
Jan-14
Source: Nomura Quantitative research. Figure shows price/book of the top quartile of
stocks on our Composite Momentum measure relative to the bottom quartile of stocks.
A look at the previous draw-downs that the factor suffered in the past 25 years which
we defined as periods of sustained underperformance amounting to 10% or more
shows that on average these have happened when Momentum was nearly four times
more expensive than it is today, and have never happened from valuations at levels as
low as they are now. In fact, we showed in previous research that historically, similar
valuation levels were always followed by the factor outperforming on a six- and 12-month
view. (See Time to buy the winners, 7 January 2014.)
The factor should also benefit from continued support from the macroeconomic
environment; with the global economy continuing to progress through expansion, this
should be a favourable environment for the style. Lastly, its composition remains procyclical, and in line with our fundamental sector views, which also are unchanged, with a
preference for Financials and selected non-commodity cyclicals over defensives such as
Consumer Staples and Utilities.
One key thing to stress is that for long-short tactical investors with shorter holding
periods some caution needs to be exercised given that they seem to have suffered
particularly badly from the recent moves and that the ultimate cause of the sharp moves
like the one of 14 April is hard to pin down. Also, the move appears to have been
amplified by fund delivering, which is hard to predict and could potentially continue in the
very short term. As a call that is in large part driven by valuations, this is for investment
horizons of three months and beyond.
Our other factor calls are unchanged. We continue to prefer Risk over Quality, given that
quality stocks continue to trade at a large premium to risk stocks while seeing
intensifying downgrades. We have recently downgraded Value to neutral because of the
low valuation dispersion between value stocks and the rest of the market as well as the
overly bullish analyst expectation for these stocks. Lastly, we continue to discriminate
between growth measures (preferring the more cyclical expected growth factors to
sustainable growth) and are neutral on Size.
13
Of bonds and bubbles value

outperforms in rates, as in equities
Value investing is nothing new. Especially in equities, value investing is among the
oldest and most well-known strategies. As early as 1934, Benjamin Graham and David
Dodd spelt out the principles of value investing in their text Security Analysis.
Academics such as Eugene Fama and Kenneth French have also studied value formally.
For example, Fama & French (1992) used value as part of their three-factor model of
stock returns. Legendary investors such as Warren Buffett and Seth Klarman famously
use the principles of value to guide their investment decisions.
At its core, value investing is simple: buy assets that are cheap, sell assets that are
expensive. Or as what Warren Buffett has observed in one of his letters, whether were
talking about socks or stocks, I like buying quality merchandise when it is marked down.
In this article, we focus on value in interest rates. We find that using techniques
fundamentally similar to those used in equities can help rates investors identify value,
across both curves and currencies. We discuss the following points:
Value exists in both equities and interest rates.
Carry in interest rates is analogous to earnings yield (E/P) in equities. Just as stocks
with high earnings yield outperform those with low earnings yield, curve points with high
carry outperform those with low carry.
15 April 2014
Tam Rajendran - NIplc

tam.rajendran@nomura.com
+44 20 7102 8814
Yeong Shang Loh - NIHK
yeongshang.loh@nomura.com
+852 2252 1551
Chien-Hua Chen NIHK
chien-hua.chen@nomura.com
+852 2536 7429
Srivaths Balakrishnan - NSL
srivaths.balakrishnan
@nomura.com
+65 6433 6545
Anthony Morris - NIplc
anthony.morris@nomura.com
+44 20 7102 9215
Comparing earnings yield both relative to its own history (time-series) and across
stocks (cross-sectional) is important to place current valuations in context. Similarly,
comparing carry on both time-series and cross-sectional basis is key.
A long/short value strategy in rates outperforms a long-only benchmark. Being free to
trade the best points of value across curves and currencies, without constraining the
strategy to hold pre-specified pairs, can help make the strategy robust.
Bubbles develop gradually, be it in equities or rates. Equities and rates dont sell off
when they are cheap crashes occur in the context of stretched valuations. Valuesignals can help track a build-up in overvaluation and identify when sell-offs in rates are
more likely.
A long-only version of the value strategy outperforms a long-only benchmark on a
duration-matched basis. By going long the cheapest curve points across countries, the
strategy beats a static benchmark that holds the entire market.
A short-only version of the value strategy can help hedge rising rates. It can also be
cheaper than being the short the entire market as it identifies the most expensive points
to be short rather than shorting all points.
Value can outperform when momentum suffers. Momentum tends to underperform
when rates are close to zero and markets range-bound. In such trendless conditions,
value or mean-reversion trades tend to outperform.
Value works in both equities and rates
Assets that offer good value outperform those that do not. This appears to be equally
valid across equities and rates. In Fig. 23, we show performance of S&P 500 and G4
interest rate markets conditional on valuation. Both equity and rates outperform when
valuations are attractive relative to when valuations are poor. The question then is: how
to measure value? We will first look at some common measures of value in equities and
then extend the same fundamental approach to rates.
14
15 April 2014
Fig. 23: Value works in both equities and rates
Poor Value
Good Value
0.8%
0.7%
5
0.6%
0.5%
0.4%
0.3%
2
0.2%
1
0.1%
0.0%
Average monthly excess return (bp)
Average monthly excess returns (%)
0.9%
0
Equity
Rates
Source: Nomura research, Bloomberg
Value measures in equities

Common measures of value in equities compare the market price of a stock with
fundamental measures such as book value, forward or trailing earnings, and dividends, etc,
usually aggregated across a few quarters to smooth out short-term shocks. These are
sometimes further adjusted for business cycle and inflation effects, and compared with
long-term levels to gauge the valuation perception of current investors.
One common measure is the cyclically-adjusted price-earnings ratio (or CAPE; Campbell
and Shiller, 1988, 1998, 2001). Popularised by Nobel prize-winning economist Robert
Shiller, CAPE (sometimes referred to as Shillers P/E) looks at the ratio of real price to
real earnings smoothed over a 10-year period. A high P/E ratio indicates that current
market prices are high relative to earnings, perhaps suggesting overvaluation. Similarly,
a low P/E may suggest the market is undervalued. Fig. 24 shows historical Shillers P/E
for the S&P composite since 1900. Shillers P/E has been a robust indicator of valuation
in this period. The ratio has tended to be relatively high before large sell-offs, like in
1929, 1966, 2000 and more recently, in 2007. These were times of equity bubbles, when
prices were extremely high, and stocks expensive and overvalued. In contrast, the ratio
has been relatively low, indicating cheapness, just before significant bull markets, as in
1932, 1982 and 2009.
Fig. 24: High P/E ratios means expensive equities
50
2000
S&P Index (rhs)
Shiller's P/E
40
1929
1966
30
2007
400
S&P composite index
Shiller's P/E (lhs)
20
10
0
1900
40
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Source: Nomura research, Shillers website: www.econ.yale.edu/~shiller/
15
15 April 2014
A related and widely-used valuation measure is the earnings yield. It is calculated as the
ratio of earnings to price, ie, the inverse of P/E. Fig. 25 shows historical earnings yield for
the S&P composite since 1900. Stating valuation in yield terms offers a quick way of
comparing potential return both across individual stocks and different asset classes 3.
Indeed, typical equity value strategies compare earnings yield both in a time-series and
cross-sectional sense.
Fig. 25: Low earnings yields means expensive equities
0.25
S&P Index (rhs)
Earnings yield
0.20
0.15
400
0.10
S&P composite index
Earnings yield (lhs)
0.05
1966
2007
1929
0.00
1900
1910
1920
1930
2000
1940
1950
1960
1970
1980
1990
2000
40
2010
Source: Nomura research, Shillers website: www.econ.yale.edu/~shiller/
The relationship of earnings yield to expected returns has been documented in Basu (87)
and Ball (92) among others. Historically, earnings yield has proven to be a good proxy
for expected returns. High earnings yields tend to precede higher expected returns and
vice-versa. In Fig. 26, we show one-year ahead S&P returns conditional on current level
of earnings yield.
Subsequent S&P real returns at time

t+1 (%, p.a.)
Fig. 26: Equities outperform when earnings yields are high

16
12
1y ahead
8
0
1
2
3
4
Quintiles of earnings yield at time 't'
Source: Nomura research, Shillers website: www.econ.yale.edu/~shiller/. Analysis based on data from 1900 to 2014.
We find that one-year ahead stock returns are the highest when earnings yields are in
the top quintile and weakest when earnings yields are in the bottom quintile. In other
words, measuring earnings yield relative to its own historical average can help place
current valuations in context. Earnings yields above historical average may mean
Dividend yield is a more direct measure, but is inadequate in practice owing to tax
considerations and variations in corporate payout policy. For example, companies may
favour stock buy-backs over dividends for issues unrelated to intrinsic valuation.
16
15 April 2014
markets are undervalued (and vice-versa). Before using earnings yields to compare
different stocks or different markets, it may be important to standardise the indicator to
adjust for idiosyncrasies. Adjusting for the long-term average makes cross-sectional
comparisons consistent and robust.
In Fig. 27, we show a global equity value strategy that goes long stocks with high
earnings yield (cheap) and short those with low earnings yield (expensive). This strategy
has outperformed the MSCI World Equity index over the long sample.
Fig. 27: Global equity value strategy
1000
Global Equity Value
800
MSCI World Equities TR

600
400
200
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
Value measure in rates: carry as earnings yield

Carry in interest rates is analogous to earnings yield in stocks. Carry measures the
return on a bond assuming rates do not move. The relationship between current level of
carry and future bond returns is similar to that of earnings yield and stocks: points on the
curve with high carry tend to outperform those with low carry.
Similar to equity measures, adjusting carry for the long-term average can be important.
Carry measured relative to its own historical average (relative carry) can help identify
times of potential overvaluation and undervaluation in interest rates and place current
levels in context. When carry is relatively low, it suggests future returns for bonds are
likely to be weak. Similarly, when carry is relatively high, future bond returns are likely to
be strong. In other words, low relative carry implies rates are expensive and offer poor
value, while high relative carry implies rates are cheap and offer good value. Fig. 28
presents the evidence across G4 markets. Rates have outperformed during period of
good value across curves and currencies.
Fig. 28: Rates outperform in periods of good value
0.7
Avg. returns based on value
Avg. daily return (bp)
0.6
Top third
Bottom third
0.5
0.4
0.3
0.2
0.1
0
5y
10y 20y 30y
5y
10y 20y 30y
5y
10y 20y 30y
5y
10y 20y 30y
-0.1
17
15 April 2014
We can now construct a value strategy in rates along the lines of equity value strategies.
We trade 5y, 10y, 20y and 30y interest rate swaps across the USD, GBP, EUR and JPY
curves. We measure carry as the 1m rolldown relative to its longer-term average at each
curve point. We then compare this indicator across the 16 possible curve points and go
long the top two points and short the bottom two points.
Fig. 29: Looking for value: searching across curves and currencies
Low value
High value
5y
USD
EUR
GBP
JPY
Long
Short
Long
10y
Short
20y
30y
Source: Nomura research. Positions shown current as of 14th April 2014
Such a value strategy has outperformed a long-only G4 government bond index

historically. The rates value strategy has higher Sharpe and Calmar ratios over the long
sample and in recent periods. It also has favourable skew characteristics.
Fig. 30: Rates value outperforms long-only higher Sharpe and Calmar ratios, better skew
180
1.6
G4 govt. bond index
150
120
0.8
0.4
90
1992
0.0
1997
2002
2007
Entire sample Last 10 years
2012
1.6
Last 5 years
Last 3 years
1.0
2.0
Rates value strategy
0.6
G4 govt. bond index

1.2
Skew
Calmar ratio
1.2
Sharpe ratio
Excess return index

G4 govt. bond index
0.2
-0.2
0.8
0.4
-0.6
0.0
-1.0
Last 5 years
Last 3 years

G4 govt. bond index
Last 5 years
Last 3 years
Source: Nomura research. Performance statistics are based on monthly returns from Jan 1992 to Feb 2014
We also scale the long/short exposure to a fixed-duration target to ensure the strategy
remains duration neutral. As a result, the final strategy has very little overall duration
exposure. The scatter plots below show monthly excess returns vs monthly changes in
10y yields across G4 markets. The long-only government bond index shows typical longduration behaviour rising yields, negative returns and vice-versa. The rates value
strategy does not have any significant bias.
18
15 April 2014
Fig. 31: Better returns, no bias rates value outperforms despite flat-duration exposure
3
1.5
0
-1.5
-3
-1
-0.5
0
0.5
Monthly changes in yield (%)
Monthly excess returns (%)
Monthly excess returns (%)
G4 govt. bond index

3
1.5
0
-1.5
-3
-1
-0.5
0
0.5
Monthly changes in yield (%)
Ef f ective duration
-3
-5
G4 govt. bond index
Source: Source: Nomura research, Bloomberg. Analysis based on data from 1992-2014
This can also be seen from the effective duration of the two strategies, calculated as the
negative coefficient of returns regressed on changes in yield. As expected, the long-only
bond index has a significantly positive duration of close to 5, while the value strategy is
practically flat duration exposure.
Searching for value across curves and currencies
In equities, earnings yield is a powerful tool used to estimate relative value and identify
opportunities for outperforming the benchmark. Valuation based on CAPE across
countries may be more robust as a metric for future returns compared with single-country
implementations (Faber 2012). By diversifying across a larger set, one is more likely to
diversify away idiosyncratic effect.
Similarly in rates, searching for value across curves and currencies provides the extra
diversification for long-term consistent outperformance. Allowing the strategy to choose
the best and worst curve points without constraining it to choose among pre-specified
cross-country pairs lets it adapt to changing yield curve dynamics. Also, comparing
current levels of carry relative to history helps place valuation in context and avoids
biased positioning. Using absolute levels of carry to position can prove to be misleading
and lead to an undiversified strategy. Fig. 32 shows the percentage of time a particular
curve point was selected. We find that the strategy that looks at relative carry is in
general well diversified. A strategy that uses absolute levels of carry would have never
picked most of the points and would have been heavily undiversified.
19
15 April 2014
Fig. 32: Comparing carry against its own history provides context to valuation, helps diversification
Long
USD
EUR
GBP
JPY
Short
USD
EUR
GBP
JPY
5y
6%
1%
4%
8%
5y
5%
6%
7%
22%
10y
11%
2%
5%
2%
10y
3%
4%
5%
8%
20y
8%
3%
12%
10%
20y
4%
4%
1%
7%
30y
5%
4%
8%
12%
30y
2%
3%
2%
17%
Source: Nomura research, Bloomberg. Analysis based on daily data from 2000, when data from all curve points become available.
Fig. 33: Using absolute levels of carry ignores current context, leads to biased positioning
Long
USD
EUR
GBP
JPY
Short
USD
EUR
GBP
JPY
5y
1%
0%
2%
0%
5y
0%
1%
12%
11%
10y
1%
1%
1%
15%
10y
0%
0%
2%
0%
20y
0%
3%
0%
43%
20y
0%
1%
30%
0%
30y
0%
0%
0%
33%
30y
0%
8%
34%
1%
Source: Nomura research, Bloomberg. Analysis based on daily data from 2000, when data for all curve points become available.
Evolving macro regimes can significantly affect the initial assumptions of a strategy. One
such example is the definition of the belly of the curve. In the USD curve, it is common
to use the 5y point as the belly and reasonably so. This might not be the case in Japan.
Starting with the introduction of the zero interest rate policy by the Bank of Japan in
1999, the Japanese yield curve has become extremely flat out until the 10y point. The
front-end of the JPY curve can then be said to extend until the 5y or perhaps even
beyond until the 10y point. In such a scenario it might be inaccurate to treat the
Japanese 5y point as the belly and expect it to have dynamics similar to the US 5y
point. With the Fed keeping short-term rates low, even US rates might be headed in the
same direction as Japan. The USD belly too might move down the curve as front-end
rates become flatter.
Macroeconomic conditions change and curve behaviour reflects these changes. A rates
strategy, which has fixed assumptions about curves in its design, can underperform as
reality starts to differ from its initial assumptions. A strategy that is dynamic and is free to
move across curves and currencies can be more adaptive to the market.
Using value to identify sell-offs
Be it equities or rates, bubbles develop gradually; they rarely happen out of the blue.
Crashes occur when assets are expensive and valuations stretched. Equities do not
crash when they are cheap. Similarly, rates sell off not when they are cheap, but when
they have been consistently expensive and overvalued. Often, in periods of such
overvaluation, tell-tale signs show up in the data. Rules-based value strategies that stick
to following the data can help track a build-up in valuation. It can be difficult to time such
events perfectly, but sticking to simple and consistent valuation methodologies, and
having checks that compare along both time-series and cross-sectional basis can help
make the strategy robust.
We look at three cases of sell-offs in interest rate markets, all of which were thought to
be sudden or unexpected at that time: the inflation driven sell-off in the US in 1965, the
February 1994 sell-off in the US, and the so-called VaR shock in Japan in June 2003.
But applying the techniques we describe in the previous sections, it seems rates were
indeed overvalued and were likely to crash in each of these cases.
The charts below show the 10-year yields in the respective countries. The colour of the
columns shows traded positions in that particular country; the columns in the top half are
long positions and those in the bottom half are the short positions.
20
15 April 2014
Fig. 34: Case study 1: US sell-off in 1965
5.5
Long positions in
the US
5.0
4.5
USD 20y
4.0
USD 10y
3.5
USD 5y
0
3.0
USD 10y (%, rhs)
Short positions in
the US
US CPI (yoy, %)
2.5
2.0
1.5
-1
196501 196504 196507 196510 196601 196604 196607 196610
1.0
Source: Nomura research, Bloomberg. Due to unavailability of swap rates data, bond yields have been used as proxy.
At the start of 1965, inflation in the US (gold line) was at a moderate 1% y-o-y. By the
end of the next year, it had reached around 3.5%. The value strategy was long the 20y,
and then later, the 5y point (blue and grey columns in the top half). But soon after, on the
basis of relative carry, USD rates began to appear expensive. In the latter half of 1965,
the strategy shifted to being short USD, just as yields began to rise. From then on, it was
consistently short USD rates through the 10y and 20y points (light and dark blue
columns in the bottom half). Positioning based on value would have helped capture most
of the sell-off.
Short positions in USD
Long positions in USD
Fig. 35: Case study2: US sell-off in 1994
8.5
8.0
USD 30y
7.5
0
7.0
6.5
USD 20y
USD 10y
USD 5y
USD 10y yield,
rhs, %
-1
6.0
5.5
-2
199401
199403
199405
199407
199409
199411
Source: Nomura research, Bloomberg.
February 1994 saw the start of one of the largest sell-offs in US rates. 10y bond yields
rose by over 200bp in the course of that year. Although the sell-off was deemed to be
unexpected by most market participants, indicators of value told a different story. From a
valuation perspective, the strategy found US rates to be most expensive among the
sixteen points it looks at. Accordingly, the value strategy was short the 5y and 30y points
(grey and purple columns in the lower half). It continued to be short USD rates
throughout the year, switching to short 5y and 10y later and benefited from the sell-off.
21
15 April 2014
Fig. 36: Case study 3: Japan sell-off in 2003
Long positions in
JPY
1.8
1
0
Short positions in
JPY
2.0
-1
1.6
1.4
JPY 30y
1.2
JPY 20y
1.0
JPY 10y
0.8
JPY 5y
0.6
JPY 10y yield,

rhs, %
0.4
0.2
-2
200301 200304 200307 200310 200401 200404 200407 200410
0.0
The year 2003 started benignly for Japanese rates. The 10y point had continued its rally
and had fallen by around 35 bps in the first few months, reaching its all-time low in June.
But the strategy found valuations to be stretched and JPY rates expensive compared to
their own history and across markets. Based on this, it went short the 20y and 30y points
(dark blue and purple columns in the lower half). In June 2003, rates rose sharply and
sold-off by over 100 bps in a matter of months and reached a level of 1.6% in September
2003. The strategy, which was positioned short throughout this episode, benefited from
this sell-off.
The strategy continued to find JPY rates overvalued and remained short as rates
continued to rise into 2004. The sell-off finally cooled around the middle of 2004.
Interestingly, JPY rates began to look attractive at this point. The strategy found them to
be relatively cheap and undervalued. Towards the end of 2004, just as rates started to
rally, it went long JPY rates. As shown, the strategy went long the 20y and 30y points
predominantly (dark blue and purple in the top half) and the 10y at other times (light
blue).
Using value to outperform a long-only benchmark
The strategy described in the previous sections is long/short, based on value. It receives
interest rate swaps at the two cheapest curve points and pays interest rate swaps at the
two most expensive curve points. Receiving interest rate swap is equivalent to being
long a bond. But it is possible to only use the long part of the strategy. In Fig. 37 we
show a long-only variation of the value strategy described before. Based on relative
carry, the strategy searches for points across curves that offer the best value or are
cheapest. It then buys these points, matching the duration to that of the benchmark.
Such a strategy has outperformed a long-only G4 government index. It has improved
returns and lowered the drawdowns, resulting in higher Sharpe and Calmar ratios.
22
15 April 2014
Fig. 37: Long-only value strategy outperforms a long-only benchmark
Long-only value strategy (top 2)
90.0
1990
Avg. ret (%)

Volatility (%)
Sharpe
MDD
Calmar
1993
1996
1999
1992-2014
Long-only
G4 bond
rates value
index
4.32
2.71
4.55
3.17
0.95
0.85
8.55
8.42
0.51
0.32
Long-only G4 govt. bond index
2002
2005
2000-2014
Long-only
G4 bond
rates value
index
4.77
2.46
5.11
3.38
0.93
0.73
7.22
6.84
0.66
0.36
2008
2011
2014
2011-2014
Long-only
G4 bond
rates value
index
5.36
3.37
4.49
3.64
1.19
0.93
4.28
4.60
1.25
0.73
Source: Nomura research, Bloomberg. Both strategy and long-only index have been scaled to have the same annualised
volatility for easier comparison.
The outperformance is largely attributable to two things the strategy does differently.
First, it trades interest rate swaps instead of bonds. Trading swaps offers an immediate
pickup in yield over trading bonds. Second, it dynamically looks for the best points to be
positioned long across the curve. Selectively being long the part of the curve that is
cheapest can help outperform a benchmark that statically holds the entire curve. After
all, the benchmark does not distinguish between expensive and cheap, between good
value and poor value.
Using value to hedge rising rates
The counterpart to the long-only part of the value strategy is to trade only the short
positions. The short-only value strategy sells the two most expensive curve points across
curves, providing a cheaper way to hedge rising rates than going short the entire market.
In Fig. 38 we compare such a strategy to a short-only G4 government bond index (the
negative of the long-only index used in the previous section). As before, the strategy has
been targeted to have a duration similar to that of the bond index.
23
15 April 2014
Fig. 38: Short-only value strategy outperforms a short-only index
Short-only value strategies (bottom 2)

Short-only G4 govt. bond index
50
1990
1993
1996
1999
2002
1992-2014
Avg. ret (%)

Volatility (%)
Sharpe
MDD
Calmar
2005
2008
2000-2014
2011
2014
2011-2014
Short-only
rates value
Short G4
bond
index
Short-only
rates value
Short G4
bond index
-0.82
-2.71
-0.73
3.40
3.17
3.21
-0.24
-0.85
23.38
-0.04
Short-only
rates value
Short G4
bond index
-2.46
0.01
-3.37
3.38
2.70
3.64
-0.23
-0.73
0.00
-0.93
46.74
16.34
31.67
7.50
13.81
-0.06
-0.04
-0.08
0.00
-0.24
Source: Nomura research, Bloomberg. Both strategy and long-only index have been scaled to have the same annualised
volatility for easier comparison.
The short-only value strategy bleeds much less than the short-only bond index. It also
has much lower drawdowns and better returns. Fig. 39 highlights the source of gains.
When rates are rising, it delivers returns almost on par with being short the entire market.
But, more importantly, when rates are falling, it loses only half as much being short the
market. It offers a cheaper way to protect against rising rates.
Fig. 39: Short-only value offers a cheaper way to hedge rising rates
Avg. monthly excess returns (%)
Short-only value strategy (bottom 2)
0.6
Short-only G4 govt. bond index
0.2
-0.2
-0.6
-1
Months of negative LO returns
Months of positive LO returns
Source: Nomura research, Bloomberg. Analysis based on monthly returns from 1992-2014.
Using value to outperform in trendless markets

Like a long straddle position, momentum requires large moves in either direction to
perform. If interest rates remain low and markets range-bound, such trading rules will
suffer. For example, before Bank of Japan introduced its zero rate policy in 1999,
momentum strategies worked well in JGB futures. Since 1999, however, such strategies
have failed to perform. Instead, value strategies that trade on mean-reversion in JGB
futures have started to outperform. The figure below shows the performance of
momentum and value strategies in JGB futures.
24
15 April 2014
Fig. 40: Momentum has underperformed while Value has outperformed in Japan postZIRP
180
160
140
120
ZIRP begins
100
JGB momentum
JGB value
80
1987
1992
1997
2002
2007
2012
Source: Nomura research, Bloomberg. Both strategies have been scaled to have the same volatility for easier comparison
This has been evident in global markets more recently. With global yields at historical
lows, interest rate markets have remained trendless. As a result, trend-following
strategies like momentum have underperformed. In contrast, value strategies have done
very well. The chart below shows performance of value and momentum strategies
across G4 markets last year.
Fig. 41: Value outperformed Momentum in G4 rates in 2013
107
G4 rates value
106
G4 rates momentum
105
104
103
102
101
100
99
98
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Conclusion
Value strategies in equities have been popular for decades. Typical value strategies in
equities use earnings yield as a measure of valuation. Earnings yield compared to its
own history and across markets helps place current valuations in context and to identify
expensive/cheap stocks. In interest rates, carry is similar to earnings yield. Just like in
equities, comparing carry to its own history and across curves can help identify points of
overvaluation or undervaluation. A value strategy in interest rates based on such a
measure has outperformed over time, delivering higher returns and lower drawdowns
compared to a long-only benchmark.
Value strategies can be useful in many different ways. By tracking measures of value the
strategy can help identify times when valuations are stretched and rates likely to sell-off.
A long-only value strategy can also help beat a long-only benchmark by selecting points
that are cheap and undervalued to go long instead of being long the entire market. Its
opposite, the short-only value strategy can help hedge rising rates better than a strategy
that is short the entire market, as it shorts only points that are overvalued and expensive.
25
15 April 2014
Also, when rates are close to zero and markets range-bound, momentum strategies may
underperform. However, in these trendless environments, value strategies tend to
outperform.
The essential truth of value to buy assets that are cheap and sell assets that are
expensive is universal. It works in equities and also in rates. Borrowing fundamental
techniques of valuation from equities and applying them to interest rates can help design
a strategy that is simple, robust and consistent in its methodology.
26
15 April 2014
References
Asness, C.S., Moskowitz, T.J., and Pedersen, L.H. (2013), Value and Momentum
Everywhere, in Journal of Finance 68, 929-985
Ball, R. (1992), The earnings-price anomaly, in Journal of Accounting and Economics
15, 319-345
Basu, S. (1977), Investment Performance of Common Stocks in Relation to Their Price
to earnings Ratios: A Test of the Efficient Market Hypothesis, in Journal of Finance 32,
663-682
Campbell, J.Y., and Shiller, R.J. (1988), Stock Prices, Earnings, and Expected
Dividends, in Journal of Finance 43, 661-676
Campbell, J.Y., and Shiller, R.J. (1998), Valuation Ratios and the Long-Run Stock
Market Outlook, in Journal of Portfolio Management 24, 11-26
Faber, M.T. (2012), Global Value: Building Trading Models with the 10 year CAPE, in
Cambria Quantitative Research, No.5, August 2012
Fama, E.F. and French, K.R. (1992), The cross-section of expected stock return, in
Journal of Finance 47, 427-465
Frazzini, A., Kabiller, D. and Pedersen, L.H. (2013), Buffetts Alpha, NBER Working
Paper No. w19681
Graham, B. and Dodd, D. (1934), Security Analysis, McGraw-Hill
27
Concentrated position unwinding on 24

March
From 24 March 2014 through the mornings trading session on 25 March, actively
managed Japanese equity funds faced a relatively strong headwind, especially in large
cap universes. Strategies based mainly on analyst earnings forecast-related factors
and stocks with high active fund ownership ratios produced negative returns of less
than -3% over this period. It is highly probable that, for some reason, there was a
concentrated spate of selling for position unwinding purposes by active funds on those
two days. The sell-off appears to have come to an end before the start of the afternoon
trading session on 25 March, but we think there is still a need for caution.
We all remember the "quant headwind" in August 2007, when selling pressure was
similarly concentrated on certain investment styles, such as E/P-based factors, and the
performance of a number of factors plummeted at the same time in multiple markets
around the world. This time around, however, we think the sell-off was due not to the
unwinding of positions by global funds but to selling by Japanese active pension funds.
15 April 2014
Akihiro Murakami - NSC

akihiro.murakami@nomura.com
+81 3 6703 1746
Naoko Kato - NSC
naoko.kato@nomura.com
+81 3 6703 3912
Tomoyo Izumi - NSC
tomoyo.izumi@nomura.com
+81 3 6703 1743
Previously published on 28
March 2014
While it is difficult to pinpoint the reasons for selling by Japanese active pension funds,
we think investors need to be aware of the possibility of a similar thing happening
again. One reason for this view is that the dissolution of employee pension funds
(EPFs) is about to take off on a large scale. Whether or not what happened on 2425
March was linked to the return to the state of the substitutional portions of EPFs, the
risk remains that a similar thing could happen again. A positive way of looking at what
happened on 2425 March would be to say that it has served as "disaster training" in
preparation for the risk of future unwinding of pension fund positions.
Based on this view, we would like to stress the importance of avoiding stocks that are
the object of herding by active funds. For example, if we assume that there is a
substantial unwinding risk for stocks in which only domestic pension funds are
substantially overweight, then avoiding these stocks is likely to be an effective strategy.
This kind of strategy would have performed well from mid-January 2014 onward, and
would have generated positive returns without suffering a negative impact on 24 March
2014.
1. Unwinding of Japanese large caps
On 24 March and in the morning trading session on 25 March, managers of active
Japanese equity funds were hit by a headwind. In this chapter we look at the intraday
performance of the major quant factors for Japanese equities on 24 and 25 March. The
analysis set out below shows that large caps suffered the greatest losses and strategies
based mainly on analyst earnings forecast-related factors and stocks with high active
fund ownership ratios produced returns of around -2% on 24 March and around -1% in
the morning session on 25 March. It is highly probable that, for some reason, there was
a concentrated spate of selling for position unwinding purposes by active funds on those
two days.
1.1 Headwind for active fund managers
We look first at the performance of key quant factors on 24 March 2014. We divided our
two universeslarge caps (TOPIX 500 stocks) and small caps (listed stocks with market
caps of 10200bn)into quintiles based on factor values as of the beginning of March
2014. For each universe, we then calculated the daily return (equally weighted basis) on
24 March on a strategy comprising long positions in the stocks in the quintile with the
highest factor values and short positions in the stocks in the quintile with the lowest
factor values.
Fig 42 shows the results. Estimated E/P, a valuation-related factor, and expected ROE, a
growth-related factor, generated substantial negative returns, particularly for large caps.
Estimated E/P generated returns of -1.96% and -1.25% for large caps and small caps,
respectively, while expected ROE generated returns of -1.76% and -0.8%, respectively.
The active fund ownership ratio, which is the supply and demand factor that we think
requires the most attention, generated the lowest daily return for large caps on 24 March
of all the factors we examined, at -2.4%.
28
15 April 2014
What happened in the Japanese equity market on 24 March, just ahead of the fiscal
year-end, has no doubt caused problems for fundamentals-based active fund managers.
Not only did strategies based on analyst forecasts, which many active fund managers
favor, fail to function, but active fund managers also saw a sharp deterioration in the
performance of many of the stocks in their portfolios.
Fig. 42: Factor returns on 24 March 2014
Factor return as of 24 March 2014 (%)
Large cap (Ranking) Small cap (Ranking)
Factor
Valuation
Estimated E/P
B/P
Estimated dividend yield
Time series normalized E/P
Time series normalized B/P
Growth
Expected ROE
Expected pretax profit margin
Recurring profit growth
Quality
Total accruals
Merton default probability
Size
Market cap
Historical return
Historical 1-month return
Risk
Fundamental beta
Specific risk
60-day volatility
Supply/demand
Active fund ownership ratio
Nonresident ownership ratio
Pension investment trust ownership ratio
Individual investor ownership ratio
Net equity finance
Consensus forecast Change in recurring profits
Change in rating
Change in target price
Earnings surprise
Y-y change in quarterly progress
Share price response to results
Undervalued overvalued
High low
High low
High low
High low
Quality low high
High low
Large small
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
High low
-1.96
0.39
-0.69
0.70
0.77
-1.76
0.85
-1.06
-0.02
-0.13
-1.21
-0.04
-0.20
-0.82
-1.09
-1.11
-0.44
-0.57
-2.40
-1.38
-1.46
1.02
-0.09
0.08
-0.45
-0.33
-0.77
-0.41
(27)
(5)
(17)
(4)
(3)
(26)
(2)
(20)
(7)
(10)
(23)
(8)
(11)
(19)
(21)
(22)
(14)
(16)
(28)
(24)
(25)
(1)
(9)
(6)
(15)
(12)
(18)
(13)
-1.25
0.20
-0.68
0.38
0.67
-0.80
0.62
0.35
-0.01
0.77
0.77
0.24
-0.59
0.02
0.22
1.33
0.14
1.29
-0.01
0.75
0.27
0.34
0.01
0.58
-0.63
-0.06
-0.53
-0.39
(28)
(15)
(26)
(9)
(6)
(27)
(7)
(10)
(19)
(4)
(3)
(13)
(24)
(17)
(14)
(1)
(16)
(2)
(20)
(5)
(12)
(11)
(18)
(8)
(25)
(21)
(23)
(22)
Note: Based on TOPIX 500 stocks for large caps and listed stocks with market caps of 10200bn for small caps, as at the time of rebalancing at the beginning of each month.
For each factor, we divided each universe into quintiles based on factor values , and calculated the daily return (equally weighted basis) on 24 March, including dividends, on a
strategy comprising long positions in the stocks in the quintile with the highest factor values and short positions in the stocks in the quintile with the lowest factor values. We did
not take sector allocation into account. Top three factor returns are shown in red, bottom three are shown in blue.
Source: Nomura
1.2 Selling for position unwinding purposes ended before afternoon session on
25 March
We look next at intraday performance on 24 and 25 March. Our analysis indicates that
selling that appeared to be for position unwinding purposes by active funds, which
started when the market opened on 24 March, came to an end before the afternoon
session on 25 March.
We now look at intraday factor performance in order to analyze the situation in more
detail. Our analysis methodology is the same as in Section 1.1.
Fig. 43 shows intraday factor returns on 24 March 2014. While the TOPIX rose sharply
and the mood in the market as a whole appeared to be, if anything, rather optimistic
(Fig.43 (c)), active fund managers were having a difficult time.
Fig. 43 (a) shows how low-P/E stocks were sold off from the start of trading on 24 March
and saw share price declines of around 1% in the morning session and another 1% or so
in the afternoon session. Similarly, Fig. 43 (b) shows that stocks with high active fund
ownership ratios suffered further price declines in the afternoon session.
29
15 April 2014
This trend continued into the next day, with similar phenomena observed at least through
the morning session of 25 March as on 24 March (Fig. 44 (a) and (b)). The return on
estimated E/P fell a further 1% or so in the morning session, while the active fund
ownership ratio factor generated a return of less than -1%. However, these trends were
reversed immediately after the start of trading in the afternoon session on 25 March, and
both low-P/E stocks and stocks with high active fund ownership ratios were bought back.
The selling thought to be for the purpose of position unwinding by active fund managers
that began at the start of trading on 24 March thus appears to have come to an end
before the afternoon session on 25 March. However, we think investors need to remain
aware of the risk that a similar sudden deterioration in the supply/demand balance might
occur again.
30
15 April 2014
Fig. 43: Intraday factor returns on 24 March 2014
Estimated E/P
(%)
0
Intraday factor return (lhs) and intraday turnover ratio (rhs)
x 10 -8
9
8
0.5
7
6
5
4
1.5
3
2
1
09:00
09:30
10:00
(b) Active fund ownership ratio

(%)
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
x 10 -8
8
-0.5
7
6
-1
5
4
-1.5
3
2
-2
1
09:00
09:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
c) TOPIX
(%)
Intraday return
1.5
0.5
09:00
09:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
Note: Based on a universe of TOPIX 500 stocks. For each factor, we divided the universe into quintiles based on factor values at the beginning of March 2014. We then
calculated the intraday return (equally weighted basis) and intraday turnover ratio on 24 March on a strategy comprising long positions in the stocks in the quintile with the highest
factor values and short positions in the stocks in the quintile with the lowest factor values. We did not take trading costs into account. Analysis is based on historical data and
does not guarantee future performance.
Source: Nomura
31
15 April 2014
Fig. 44: Intraday factor returns on 25 March 2014
(a) Estimated E/P

(%)
x 10 -8
6
5
-0.5
4
3
-1
2
1
-1.5
09:00
09:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
(b) Active fund ownership ratio

(%)
0
x 10 -8
-0.2
-0.4
-0.6
5
4
-0.8
-1
2
-1.2
-1.4
09:00
09:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
(c) TOPIX
(%)
Intraday return
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
09:00
09:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
Note: Based on a universe of TOPIX 500 stocks. For each factor, we divided the universe into quintiles based on factor values at the beginning of March 2014. We then
calculated the intraday return (equally weighted basis) and intraday turnover ratio on 25 March on a strategy comprising long positions in the stocks in the quintile with the highest
factor values and short positions in the stocks in the quintile with the lowest factor values. We did not take trading costs into account. Analysis is based on historical data and
does not guarantee future performance.
Source: Nomura
32
15 April 2014
2. Selling by pension funds is the likely cause

The selling pressure concentrated on E/P-based factors and other specific investment
styles that we saw in the Japanese equity market on 24 March was reminiscent of the
"quant headwind" in August 2007 4 , when the performance of similar factor strategies
plummeted simultaneously for a short period of time in a number of markets in the US,
Europe, Japan, and Asia. Below, we set out our analysis of whether what happened on
2425 March was due to the unwinding of positions by global funds or simply due to
domestic factors (such as domestic fund cancellations). We conclude that what
happened on 2425 March was linked to the unwinding of positions by domestic pension
funds. This is because we were unable to confirm a correlation in global factor
performance during the period around 24 March, unlike for August 2007, and there was
also a marked deterioration in the performance of domestic pension portfolios in March,
as performance data for Japanese equity investments by investor category show.
Even if the unwinding of positions by Japanese pension funds was the direct cause of
what happened on 2425 March, as we suspect, it is difficult to pinpoint the exact
reasons for this. However, we need to bear in mind that the dissolution of EPFs is about
to get fully under way. We cannot rule out the possibility that what happened on 2425
March was related to EPF dissolution, but whether or not this was the case, a risk clearly
remains that a similar thing will happen again. This is because EPF dissolution is
scheduled to take place over the next five years, and is likely to have multiple peaks.
Taking a positive view, we could see the recent spate of position unwinding as "disaster
training" in preparation for the risk of further unwinding of pension fund positions in the
future. We would therefore like to stress the importance of avoiding stocks subject to
herding by active funds. For example, assuming there is a high risk of unwinding for
stocks in which only domestic pension funds are substantially overweight, we think
avoiding these stocks is likely to be an effective strategy. This kind of strategy would
have performed well from mid-January 2014 onward, and would have generated positive
returns, without suffering any negative impact from the spate of unwinding on 24 March
2014.
2.1 No sign of a connection with unwinding by global funds
We now compare the recent selling pressure thought to be due to the unwinding of
positions by active funds with what happened in August 2007 in order to investigate
whether the events of 2425 March were due to trading by global funds. In the analysis
set out below, we were unable to confirm the kind of correlation between factor
performance on global markets that we saw at the time of the quant headwind in August
2007. We therefore suspect that what happened in the Japanese equity market on 24
25 March was due not to global factors but to domestic factors (such as domestic fund
cancellations).
Below, we compare recent global factor performance with that at the time of the quant
headwind in August 2007. Our universe was Japanese, North American, EMEA, and
Asia-Pacific (ex Japan) stocks in the MSCI World Index, and we looked at the
effectiveness of estimated E/P, expected ROE, and analyst forecast revisions for each
region. For each factor, we divided the universe into quintiles based on factor values at
the beginning of each month. We then calculated daily returns on a strategy comprising
long positions in the stocks in the quintile with the highest factor values and short
positions in the stocks in the quintile with the lowest factor values (equally weighted
basis). All returns were calculated on a US dollar basis. In order to confirm what
happened during the quant headwind period (131 August 2007) and recently (325
March 2014), we looked at cumulative factor performance in the two periods.
Fig. 45 shows our results. The charts on the left-hand side show recent performance
while the charts on the right show performance in the quant headwind period. Shading
indicates days on which unwinding was observed (810 August 2007, during the quant
headwind period, and 24 March 2014).
Tamura, H., et al, 2007. Headwind against quantitative factors, Nomura Quantitative
Research report, 9 August 2007
33
15 April 2014
Let us start by comparing recent factor performance with that in the quant headwind
period for Japanese equities. Factors that have seen their effectiveness decline recently,
such as estimated E/P and expected ROE, also saw a sharp deterioration in
performance in the quant headwind period. Returns over the three days of 810 August
2007 were -8.9% for estimated E/P, -3.0% for expected ROE, and -4.2% for analyst
forecast revisions. What happened for Japanese equities on 24 March was thus clearly
similar to what happened during the quant headwind period.
Next, we look at global factor performance recently and during the quant headwind
period. The deterioration in factor performance that occurred in the quant headwind
period was clearly a global phenomenon, although factor performance deteriorated
particularly sharply for Japanese equities. This was followed by a global improvement in
the performance of all factors after 20 August 2007. In March 2014, however, there does
not appear to have been a global correlation of quant factor performance similar to that
seen during the quant headwind period. For example, while the performance of
estimated E/P deteriorated sharply for Japanese equities on 24 March, the factor
continued to perform well on US and EMEA markets. A similar degree of deterioration in
the effectiveness of expected ROE as that seen in Japan was also not observed globally.
We think the above analysis results indicate that, looking only at factor effectiveness for
Japanese equities, the situation on 2425 March was similar to that during the quant
headwind period. This time around, however, the deterioration in factor performance was
not a global phenomenon as it was during the quant headwind period. We therefore
suspect that what happened on 2425 March was due not to global factors but to
domestic factors (such as domestic fund cancellations).
34
15 April 2014
Fig. 45: Comparison with August 2007 quant headwind period
Estimated E/P: March 2014

(End-Feb 2014 = 0%)
6.0
Estimated E/P: August 2007

(End-Jul 2007 = 0%)
2.0
Cumulative return
5.0
Cumulative return
North America
0.0
4.0
-2.0
North America
3.0
Asia (ex Japan)
2.0
1.0
EMEA
0.0
EMEA
-4.0
Asia (ex Japan)
-6.0
-8.0
Japan
-10.0
-12.0
Analyst forecast revisions: March 2014

(End-Feb 2014 = 0%)
2.0
07/8/30
07/8/24
07/8/22
07/8/20
07/8/16
07/8/14
07/8/10
07/8/6
07/8/8
EMEA
Japan
07/8/30
07/8/28
07/8/24
07/8/22
07/8/20
(yy/m/d)
07/8/16
14/3/28
14/3/26
14/3/24
14/3/20
14/3/18
14/3/14
(yy/m/d)
Asia (ex Japan)
07/8/14
North America
North America
07/8/10
EMEA
Cumulative return
07/8/8
Japan
07/8/6
Asia (ex Japan)
(End-Jul 2007 = 0%)

4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
07/8/2
Cumulative return
14/3/12
14/3/10
14/3/6
14/3/4
14/2/28
(End-Feb 2014 = 0%)

3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
Expected ROE: August 2007
07/7/31
Expected ROE: March 2014
(yy/m/d)
-14.0
07/8/2
14/3/26
14/3/24
14/3/20
14/3/18
14/3/14
14/3/12
14/3/10
14/3/6
14/3/4
14/2/28
-3.0
14/3/28
(yy/m/d)
07/8/28
Japan
-2.0
07/7/31
-1.0
Analyst forecast revisions: August 2007

(End-Jul 2007 = 0%)
3.0
Cumulative return
Asia (ex Japan)
Cumulative return
North America
2.0
1.5
1.0
-1.0
North America
-2.0
0.0
-3.0
EMEA
-0.5
EMEA
Asia (ex Japan)
-4.0
-1.0
Japan
-5.0
(yy/m/d)
07/8/24
07/8/22
07/8/20
07/8/16
07/8/14
07/8/10
07/8/8
07/8/6
07/8/2
-6.0
07/7/31
14/3/28
14/3/26
14/3/24
(yy/m/d)
14/3/20
14/3/18
14/3/12
14/3/10
14/3/6
14/3/4
14/2/28
14/3/14
Japan
-1.5
07/8/30
0.0
0.5
07/8/28
1.0
Note: Our universe was Japanese, North American, EMEA, and Asia-Pacific (ex Japan) stocks in the MSCI World Index, and we looked at the effectiveness of estimated E/P,
expected ROE, and analyst forecast revisions for each region. For each factor, we divided the universe into quintiles based on factor values at the beginning of each month. We
then calculated daily returns on a strategy comprising long positions in the stocks in the quintile with the highest factor values and short positions in the stocks in the quintile with
the lowest factor values. All returns were calculated on a US dollar basis. In order to confirm what happened during the quant headwind period (131 August 2007) and recently
(325 March 2014), we looked at cumulative factor performance in the two periods. Shading indicates days on which unwinding was observed (810 August 2007, during the
quant headwind period, and 24 March 2014). We did not take trading costs into account. Analysis is based on historical share prices and does not guarantee future performance.
Source: Nomura
35
15 April 2014
2.2 We think unwinding by Japanese pension funds was the main factor
Next, we look at performance on the Japanese equity market by investor category. The
results of this analysis indicate that the stocks in which domestic pension funds tend to
be overweight saw the sharpest deterioration in performance on 24 March, while stocks
in which nonresident investors are overweight fared relatively well. It thus appears that
the recent unwinding of active fund positions was probably due not to overseas factors
but to domestic factors, and specifically domestic pension funds.
We first confirmed the relative performance of the stocks in which each category of
investor (nonresident investors, domestic pension funds, and domestic investment trusts)
is overweight . Our analysis method was as follows. We divided the universe of TOPIX
500 stocks into quintiles based on each stock's active weight versus the TOPX as
calculated from the portfolios of nonresident investors, domestic investment trusts, and
domestic pension funds, respectively, at the beginning of each month. We then
calculated daily returns (equally weighted basis) on a strategy of going long on the
stocks in the quintile with the highest factor values (ie, the most overweight stocks) and
short on the stocks in the quintile with the lowest factor values (ie, the most underweight
stocks). Our sample period was January 2013 through 25 March 2014.
The results of our analysis are shown in Fig. 46. Stocks in which domestic pension funds
were overweight underperformed consistently from January 2014 onward and fell sharply
on 24 March 2014. Meanwhile, the performance of stocks in which nonresident investors
and domestic investment trusts were overweight was flat from the beginning of 2014
onward, and these stocks fared relatively well on 24 March. We therefore suspect that
the recent unwinding was mainly due to the unwinding of positions by domestic pension
funds.
Even if this was the case, it is still difficult to pinpoint the exact reasons for this
unwinding. One possible reason might be concerns about the sale of Japanese equities
when EPFs are dissolved. The Revised Employees' Pension Insurance Act, which will
become effective in April 2014 , raises the possibility that up to 5trn of Japanese
equities might be sold over the next five years . In addition, domestic pension fund
portfolios tend to be tilted toward value factors such as E/P in particular, and thus the
recent sell-off of low-P/E stocks might be linked to the forthcoming dissolution of
domestic pension funds. Of course, this is not enough evidence to enable us to conclude
that the forthcoming dissolution of EPFs is the reason for the recent sell-off, but we think
our view that what happened on 2425 March was mainly due to the unwinding of
positions by active funds, and domestic pension funds in particular, is probably pretty
close to the mark.
36
15 April 2014
Fig. 46: Portfolio performance by investor category

(End-Dec 2012 = 0%)
Cum ulative return
10
Dom estic investment trusts
8
6
4
Dom estic pension funds
2
0
-2
Nonresident investors
-4
2014 Q1
2013/12
Q4
2013/9
Q3
2013/6
2012/12
2013/3
Abenomics-driven rally
Q2
2013 Q1
-6
(yyyy/m)
Note: We divided the universe of TOPIX 500 stocks into quintiles based on each stock's active weight versus the TOPIX as
calculated from the portfolios of nonresident investors, domestic investment trusts, and domestic pension funds,
respectively, at the beginning of each month. Figure shows the cumulative daily return (equally weighted basis) on a
strategy of going long on the stocks in the quintile with the highest factor values (ie, the most overweight stocks) and short
on the stocks in the quintile with the lowest factor values (ie, the most underweight stocks). We did not take trading costs
into account. Analysis is based on historical share prices and does not guarantee future performance. Sample period was
January 2013 through 25 March 2014.
Source: Nomura
2.3 A way of avoiding danger: watch out for future position unwinding by domestic
pension funds
In Sections 2.1 and 2.2 above, we pointed out the possibility that the recent spate of
position unwinding by active funds might be mainly due to domestic pension funds rather
than to global factors. We think investors need to be aware of the risk that a similar thing
might happen again. Even if it was linked to the return of EPFs' substitutional
components to the state, the unwinding of positions for this reason is unlikely to have
been completed in 2425 March, and thus we think there is a possibility of a similar thing
happening again. This is because EPF dissolution is scheduled to take place over the
next five years and is likely to have multiple peaks. Taking a positive view, we could see
the recent spate of position unwinding as "disaster training" in preparation for the risk of
further unwinding of pension fund positions in the future. On this basis, we should stress
the importance of avoiding stocks subject to herding by active funds.
We can think of a number of ways of doing this. One method, for example, would be to
adopt a normal factor strategy after simply excluding from one's portfolio any stocks with
a high active fund ownership ratio. Analysis of historical data indicates that this kind of
strategy would have been effective in the face of the dramatic unwinding of positions by
active funds seen both during the August 2007 quant headwind period and during the
Lehman Shock period from September 2008 onward 5 . Fig. 48 in Chapter 3 lists stocks
with high active fund ownership ratios, which investors should see as a list of stocks to
avoid for the purpose of herding avoidance.
Below, we introduce a different kind of strategy, which is aimed specifically at avoiding
pension unwinding risk. This method involves excluding stocks in which only domestic
pension funds tend to be overweight, on the assumption that these stocks have a
substantial unwinding risk. This kind of strategy would have been an effective portfolio
rotation method during periods in the past when domestic pension funds unwound
positions in connection with the return of the substitutional components of EPFs to the
state . The analysis results set out below show that this kind of strategy would also have
been effective during the recent spate of position unwinding by active funds. We think
this strategy also might be effective in the future, as we think the risk of pension fund
dissolution is likely to increase further.
Murakami, A., 2011. Herding avoidance strategies, Nomura Quantitative Research

report, 17 October 2011
37
15 April 2014
Our analysis method was as follows. The universe and sample period were as in Fig. 46.
We divided the universe of TOPIX 500 stocks into quintiles based on each stock's active
weight versus the TOPIX as calculated from the portfolios of nonresident investors and
domestic pension funds, respectively, at the beginning of each month. We first defined
underweight stocks as those in the first and second quintiles and overweight stocks as
those in the fourth and fifth quintiles, for nonresident investors and domestic pension
funds respectively. We then defined stocks with a high risk of unwinding by domestic
pension funds as stocks in which domestic pension funds were overweight but
nonresident investors were underweight. Conversely, we defined stocks with a low risk of
unwinding by domestic pension funds as stocks in which domestic pension funds were
underweight but nonresident investors were overweight. We calculated the daily returns
(equally weighted basis) on these two types of stocks.
Fig.47 shows the results. Stocks with a low risk of unwinding (stocks in which domestic
pension funds were underweight but nonresident investors were overweight) performed
well from mid-January 2014 onward and also outperformed on 24 March 2014. It thus
appears that stocks favored by nonresident investors but shunned by domestic pension
funds were not affected by the recent unwinding. Meanwhile, stocks with a high risk of
unwinding by domestic pension funds (stocks in which domestic pension funds were
overweight but nonresident investors were underweight) saw their performance decline
from end-2013 and also underperformed on 24 March 2014.
These results indicate that it might be possible to cope with unwinding, assuming that the
cause is the unwinding of positions by domestic pension funds, by avoiding the stocks
that tend to be preferred by these funds. Fig. 49 in Chapter 3 lists stocks that we think
investors should avoid because of their high unwinding risk (ie, stocks in which domestic
pension funds are overweight and nonresident investors are underweight).
Fig. 47: Performance of stocks where nonresident investors' and domestic pension
funds' preferences differ
Cum ulative return
(End-Dec 2012 = 0%)

10
9
8
Underweighted by domestic pension funds

&
Overw eighted by nonresident investors
7
6
5
4
3
2
1
Overw eighted by domestic pension funds

&
Underweighted by nonresident investors
0
-1
-2
-3
Abenomics-driven rally
2014 Q1
2013/12
Q4
2013/9
2013/3
2012/12
-5
Q3
Q2
2013 Q1
2013/6
-4
(yyyy/m)
Note: We divided the universe of TOPIX 500 stocks into quintiles based on each stock's active weight versus the TOPIX as
calculated from the portfolios of nonresident investors and domestic pension funds, respectively, at the beginning of each
month. We defined underweight stocks as those in the first and second quintiles and overweight stocks as those in the
fourth and fifth quintiles, for nonresident investors and domestic pension funds respectively. Figure shows cumulative daily
returns (equally weighted basis) on stocks in which nonresident investors were overweight and domestic pension funds
were underweight and on stocks for which nonresident investors were underweight and domestic pension funds were
overweight. We did not take trading costs into account. Analysis is based on historical share prices and does not guarantee
future performance. Sample period was January 2013 through 25 March 2014.
Source: Nomura
38
15 April 2014
3. Lists of stocks to avoid for herding avoidance and pension

fund dissolution risk avoidance
Fig. 48: List of stocks subject to herding by active funds
No. Code Company
1
6594 Nidec
Market cap
Active fund
(mn, as of 25 Mar)
ownership ratio (bp)
Electric appliances
1,740,176
105.10
115.66
TSE33
6762 TDK
Electric appliances
557,240
8570 Aeon Financial Service
Other financing business
471,829
121.18
5947 Rinnai
Metal products
442,273
169.37
8593 Mitsubishi UFJ Lease & Finance
440,750
103.45
6841 Yokogawa Electric
Electric appliances
416,368
104.59
113.59
9435 Hikari Tsushin
Information & communication
399,187
9783 Benesse Holdings
Services
390,860
103.73
2371 Kakaku.com
Services
378,919
155.87
10
3231 Nomura Real Estate Holdings
Real estate
369,955
113.89
11
8804 Tokyo Tatemono
Real estate
352,077
117.85
130.29
12
8036 Hitachi High-Technologies
Wholesale trade
326,992
13
9831 Yamada Denki
Retail trade
321,841
105.23
14
8933 NTT Urban Development
Real estate
307,398
209.46
15
6268 Nabtesco
Machinery
300,912
101.48
16
3092 Start Today
Retail trade
290,016
125.20
102.28
17
4666 Park24
Real estate
289,695
18
8586 Hitachi Capital
288,474
198.10
19
9719 SCSK
287,568
215.26
20
4217 Hitachi Chemical
Chemicals
283,376
261.89
21
4182 Mitsubishi Gas Chemical
Chemicals
283,318
183.63
106.63
22
6361 Ebara
Machinery
278,648
23
6465 Hoshizaki Electric
Machinery
277,856
110.65
24
7453 Ryohin Keikaku
Retail trade
261,125
100.97
25
4739 Itochu Techno-Solutions
256,800
171.48
26
9962 Misumi Group
Wholesale trade
246,554
217.36
107.10
27
5714 Dowa Holdings
Nonferrous metals
242,688
28
9684 Square Enix Holdings
231,257
143.03
29
4927 Pola Orbis Holdings
Chemicals
222,549
151.15
30
5444 Yamato Kogyo
Iron & steel
219,713
204.98
Note: Universe was TSE-1 stocks for which we were able to confirm active fund ownership as of 25 March 2014. Figure shows stocks in the top 20% of the universe in terms of
active fund ownership ratio and the top 30 in terms of market cap.
Source: Nomura
39
15 April 2014
Fig. 49: List of stocks with high pension fund dissolution risk
Market cap
(mn, as of 25 Mar)
No. Code Company
TSE33
Active weight (%)

Pension funds
Nonresident
investors
8411 Mizuho Financial Group
Banks
5,063,653
0.4
-0.44
8058 Mitsubishi Corp
Wholesale trade
3,219,376
0.22
-0.18
9020 East Japan Railway
Land transportation
3,137,090
0.15
-0.03
8031 Mitsui & Co
Wholesale trade
2,860,796
0.4
-0.05
5401 Nippon Steel & Sumitomo Metal Iron & steel
2,822,455
0.13
-0.26
6758 Sony
Electric appliances
1,848,833
0.01
-0.08
4578 Otsuka Holdings
Pharmaceutical
1,742,121
0.05
-0.06
6367 Daikin Industries
Machinery
1,710,906
0.05
-0.02
8053 Sumitomo Corp
Wholesale trade
1,678,309
0.1
-0.02
10 5020 JX Holdings
Oil & coal products
1,315,121
0.23
-0.04
11 5411 JFE Holdings
Iron & steel
1,271,888
0.22
-0.11
12 8002 Marubeni
Wholesale trade
1,239,152
0.11
-0.05
13 8267 Aeon
Retail trade
1,052,918
0.08
-0.14
14 3407 Asahi Kasei
Chemicals
1,014,092
0.06
-0.02
15 2802 Ajinomoto
Foods
968,460
0.05
-0.04
16 1928 Sekisui House
Construction
875,104
0.12
-0.04
17 9021 West Japan Railway
Land transportation
807,875
0.09
-0.01
18 7012 Kawasaki Heavy Industries
Transportation equipment
695,507
0.05
-0.05
19 4005 Sumitomo Chemical
Chemicals
688,666
0.04
-0.01
20 6724 Seiko Epson
Electric appliances
611,441
0.13
-0.02
21 9101 Nippon Yusen
Marine transportation
552,679
0.1
-0.02
22 8331 Chiba Bank
Banks
539,321
0.09
-0.04
23 7911 Toppan Printing
Other products
528,056
0.02
-0.05
24 9513 Electric Power Development
Electric power & gas
526,360
0.07
-0.02
25 1802 Obayashi
Construction
449,501
0.06
-0.02
26 9404 Nippon Television Holdings
446,651
0.06
-0.02
27 5711 Mitsubishi Materials
Nonferrous metals
419,452
0.03
-0.06
28 6479 Minebea
Electric appliances
358,053
0.04
-0.01
29 8354 Fukuoka Financial Group
Banks
352,502
0.1
-0.01
30 6504 Fuji Electric
Electric appliances
347,862
0.04
-0.02
Note: Universe was TSE-1 stocks for which we were able to confirm pension fund and nonresident investor ownership as of 25 March 2014. Figure shows stocks in the top 40%
of the universe in terms of pension funds' active weight versus the TOPIX and the bottom 40% of the universe in terms of nonresident investors' active weight versus the TOPIX,
and also in the top 30 in terms of market cap.
Source: Nomura
40
15 April 2014
Fig. 50: Factor definitions

Valuation
Factor
Estimated E/P
B/P
Estimated dividend yield
Time series normalized E/P
Time series normalized B/P
Growth
Expected ROE
Expected pretax profit margin
Recurring profit growth
Quality
Size
Historical return
Risk
Supply & demand
Total accruals
Quality low high
Merton default probability

Market cap
1-month return
3-month return
6-month return
12-month return
Fundamental beta
Specific risk
60-day volatility
Active fund ownership ratio
High low
Large small
High low
High low
High low
High low
High low
High low
High low
High low
Nonresident ownership ratio
High low
Pension investment trust ownership

ratio
Individual investor ownership ratio
Net equity finance
Consensus forecast Change in recurring profits
Earnings surprise
Factor definitions
Undervalued overvalued Inverse of P/E (based on next-FY forecast where available; Nomura
forecast where available, otherwise Toyo Keizai forecast)
Undervalued overvalued Inverse of P/B
High low
Nomura estimate for this FY > Nikkei dividend forecast
Undervalued overvalued (Estimated E/P - past 36-month average estimated E/P) / standard deviation
of past 36-month average estimated E/P
Undervalued overvalued (B/P - past 36-month average B/P) / standard deviation of past 36-month
B/P
High low
Expected profit / actual shareholders equity x 100 (next-FY forecast where
possible; IFIS consensus forecasts > Toyo Keizai forecasts)
High low
Expected pretax profit / expected sales x 100 (next-FY forecast where
possible; IFIS consensus forecasts > Toyo Keizai forecasts)
High low
[0.5 x next-FY growth forecast (current FY forecast next FY forecast)] +
[0.3 X current-FY growth forecast (previous actual current-FY forecast)] +
[0.2 X actual growth (actual two FYs previous actual in previous FY)]
High low
High low
High low
High low
Change in rating
Change in target price
Y-y change in quarterly progress
High low
High low
High low
Share price response to results
High low
(IFIS consensus forecasts > Toyo Keizai forecasts)

(Increase in working capital + net increase in nonliquid operating assets) /
total assets
Estimated using Merton options theory
Log of market cap
(Based on Barra model)

(Based on Barra model)
Standard deviation of daily share price return
Active funds defined as all the active (long-only) funds in the Japanese
equities category, as categorized by The Investment Trusts Association,
Japan
No. of shares owned by nonresident corporations or individuals / no. of
shares out x 100
(No. of shares owned by pension trusts + no. of shares owned by
investment trusts) / no. of shares out x 100
No. of shares owned by individuals / no. of shares out x 100
Change in shares out compared to 24 months previously
Recurring profit forecast / past 3-month average recurring profit forecast -1
(IFIS consensus forecast where available, otherwise Toyo Keizai forecast)
IFIS consensus rating / past 3-month average - 1
M-m change in IFIS target price
Calculated from cumulative recurring profits (from Q1 through most recent
quarter) as % of consensus recurring profit forecast (FY1)
Cumulative return versus TOPIX from most recent results announcement
date to two trading days after
Source: Nomura
Reference materials
Murakami, A., 2013. Japanese equities 2014 factor outlook: Part 2, Nomura
Quantitative Research report, 9 December 2013
Murakami, A., 2013. 2013 factor outlook for Japanese equities, Nomura Quantitative
Research report, 29 January 2013.
Murakami, A., 201. Herding avoidance strategies, Nomura Quantitative Research
report, 17 October 2011
Tamura, H., et al, 2007. Headwind against quantitative factors, Nomura Quantitative
Research report, 9 August 2007).
41
15 April 2014
Appendix
Fig. 51: Global Recommended Quant Portfolio
Strategic trades
Tactical trades
Trade
Bloom berg
1 m onth
YTD
1 year
2 year
3 year
1 year R/R
Global Multifactor Model
na
+0.7%
+3.3%
+13.3%
+7.6%
+5.3%
2.7
Equity Alternative Beta
na
+0.6%
+0.5%
+4.7%
+4.3%
+3.8%
2.3
Volatility Risk Prem ium
NMEDSVP1 & NMEDSVP2
+0.8%
+1.2%
+4.8%
+7.0%
+4.9%
2.0
Natural Index
na
+0.4%
+2.0%
+22.1%
+18.0%
+12.8%
2.0
Stable Dividends
NMRASDVD
+1.3%
+2.5%
+20.5%
+19.1%
+15.3%
1.9
Long Com posite Risk
NMGLRISK
-3.0%
-0.5%
+7.7%
-2.3%
-8.3%
1.2
Short Com posite Quality
NMGQUAL
-0.9%
+0.5%
+0.2%
-0.6%
-4.4%
0.1
Long European cheap dom estic
NMRDOMS
+1.6%
+11.3%
+30.4%
+15.7%
-3.2%
2.8
Long European Expected Grow th
NMRAEGRW
-1.3%
+2.1%
-2.3%
+2.8%
-1.5%
0.5
Short European Dividend Yield
NMRADVDL/NMRADVDS
-2.2%
-1.6%
-8.4%
+0.2%
+1.3%
1.2
Short European internal Grow th
NMRAINTR
+0.7%
+0.4%
+10.5%
+4.8%
-2.4%
1.8
Long Com posite Mom entum
-2.8%
-3.1%
+20.6%
+14.6%
+6.3%
1.1
Long EM quant country selector Model
+3.5%
-0.3%
+0.9%
+1.3%
-2.5%
0.1
1 m onth
YTD
Recom m ended Quant Portfolio
-0.0%
+1.7%
HFR Market Neutral Index
+0.6%
+2.1%
Note: As of end of Mar 2014

We established our Recommended Global Quant portfolio in August 2013 (see A portfolio of Quant Ideas August 27 2013). It uses a combination of strategic strategies that are
long-term core quant holdings and tactical ones that are a function of the cycle. The strategic and tactical components receive equal weighting and among the strategic quant
trades we use equal risk contribution weighting. This is an absolute return strategy, so the benchmark is cash or market neutral hedge fund strategies
Source: Bloomberg, Nomura Quantitative r Strategy
42
15 April 2014
Fig. 52: Global Quant Stock Porfolio
Sector
Stock
North America
Capital Goods
Consumer Cyclicals
Energy
Financials
Healthcare
Media
Technology
Energy
Financials
Telecoms
DEERE & CO
NORTHROP GRUMMAN CORP
BED BATH & BEYOND INC
CHEVRON CORP
AFLAC INC
ALLSTATE CORP
CANADIAN IMPERIAL BANK
DISCOVER FINANCIAL SVCS INC
MERCK & CO
PFIZER INC
DIRECTV
APPLE INC
INTL BUSINESS MACHINES CORP
ORACLE CORP
SEAGATE TECHNOLOGY PLC
Media
Consumer Cyclicals
Telecoms
Capital Goods
Consumer Cyclicals
Energy
Financials
Healthcare
Technology
Telecoms
Rel Perf. since
92.4
118.0
64.4
118.7
61.2
55.2
87.3
55.3
55.6
29.9
75.3
521.7
197.8
39.6
54.8
32366.5
25575.0
13829.6
226613.8
26987.0
24784.8
34895.3
26031.1
162618.7
190658.0
38368.4
465332.8
205946.0
137031.1
17164.0
9.1
8.4
4.8
11.1
6.2
5.7
8.0
5.0
3.5
2.2
5.2
39.8
16.3
2.9
5.3
8.3
8.9
5.1
10.9
6.2
5.1
8.1
5.2
3.4
2.2
6.0
43.6
17.8
3.1
5.4
7.7
9.7
5.4
11.2
6.5
5.7
8.5
5.5
3.7
2.3
6.8
47.5
19.9
3.3
5.9
11.1
13.2
12.8
10.9
9.9
10.8
10.8
10.6
16.2
13.4
12.6
12.0
11.1
12.9
10.2
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Buy
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Buy
Not Rated
108.1
133.1
2257.4
124.5
260.1
28.4
67.8
164.8
25.3
15.3
221.7
93.2
15.0
99745.0
105520.3
15172.6
40482.8
7657.9
27161.0
137796.7
75042.1
48038.2
15267.8
35392.5
34558.9
26972.5
7.9
8.0
224.2
6.8
21.0
2.0
6.3
15.4
2.2
1.2
18.0
2.5
2.8
8.6
10.0
113.6
10.3
25.5
2.7
7.0
7.6
2.0
2.2
5.4
7.1
2.2
7.9
7.6
152.3
10.7
64.1
2.9
7.5
15.7
2.5
1.7
24.8
11.1
1.8
12.5
13.3
19.9
12.1
10.2
10.6
9.7
21.8
12.8
6.9
40.7
13.2
6.9
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Neutral
Buy
Buy
Buy
Not Rated
Not Rated
Not Rated
Buy
Buy
Buy
Reduce
Not Rated
Buy
39.7
22.5
62.5
25.8
14.7
97415.0
44515.2
77991.0
125536.6
14104.0
3.0
1.9
6.7
2.2
0.5
4.0
2.0
7.3
1.9
0.8
4.0
2.2
6.4
1.9
0.9
10.0
11.5
8.6
13.4
19.2
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Neutral
Buy
Not Rated
Not Rated
Reduce
11.2
17.9
14.1
112.5
50.7
17323.7
25691.9
24449.5
21315.2
20222.8
1.0
2.8
1.6
6.7
3.8
1.7
2.7
2.2
6.6
3.6
1.8
2.3
1.8
9.1
4.1
6.8
6.6
6.5
16.9
13.9
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Buy
Buy
Buy
Buy
Buy
35.2
112863.2
2.2
3.6
2.7
9.9
6-Mar-14
N/A
N/A
Buy
4.9
2.2
2.5
15.9
3.1
4.3
57.3
232.5
57.8
5.9
3.6
183.9
0.5
0.7
14.8
10.6
0.7
1.1
50.4
2.3
1318.8
1.0
6.9
3.0
30729.8
9298.0
9948.8
3036.4
7519.4
12341.7
5139.3
35651.9
14937.1
11339.8
86328.1
4745.1
37853.5
23163.8
31277.7
9108.2
170841.9
6475.5
49683.1
3342.3
141497.4
30849.6
14265.5
1563.2
0.3
0.2
0.3
1.6
0.4
0.4
8.4
19.3
6.3
0.6
1.4
N/A
0.1
0.1
1.1
1.8
0.1
0.1
4.5
0.1
101.7
0.1
0.6
0.3
0.4
0.2
0.3
2.7
0.5
0.4
5.6
27.1
8.1
0.7
1.9
38.8
0.1
0.1
1.2
1.9
0.1
0.2
5.0
0.1
85.7
0.1
1.1
0.3
0.4
0.3
0.3
0.3
0.5
0.4
5.1
30.3
9.2
1.0
1.7
24.9
0.1
0.1
1.2
1.8
0.1
0.2
5.4
0.1
148.2
0.1
0.7
0.4
13.4
10.4
8.4
5.9
6.6
10.1
10.3
8.6
7.1
9.0
1.9
4.7
6.5
5.0
12.3
5.7
6.5
6.6
10.1
21.4
15.4
12.3
6.1
10.7
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
6-Mar-14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Buy
Neutral
Not Rated
Not Rated
Not Rated
Buy
Neutral
Not Rated
Not Rated
Buy
Reduce
Not Rated
Buy
Buy
Not Rated
Not Rated
Not Rated
Added
Rel Perf. Over

week
Analyst
Rating
USD
USD
USD
USD
USD
USD
CAD
USD
USD
USD
USD
USD
USD
USD
USD
EUR
EUR
DKK
EUR
EUR
NOK
EUR
EUR
EUR
EUR
EUR
CHF
EUR
GBP
GBP
GBP
GBP
GBP
JPY
JPY
JPY
JPY
JPY
Underweight
BHP BILLITON LTD
Emerging Mkts
Basic Industries
Date
Added
Overweight
ITOCHU CORP
MITSUBISHI CORP
MITSUI & CO
CENTRAL JAPAN RLWY
NIPPON TEL&TEL CP
Asia Ex Japan
Basic Industries
Price/ earnings
Dec 14 (x)
Neutral
ROYAL DUTCH SHELL
STANDARD CHART PLC
ASTRAZENECA
GLAXOSMITHKLINE
BRITISH SKY BROADC
Japan
Capital Goods
Mkt Cap
US$m
Overweight
BASF SE
SIEMENS AG
A.P. MOLLER-MAERSK
BAYER MOTOREN WERK
VOLKSWAGEN AG
STATOIL ASA
TOTAL
ALLIANZ SE
AXA
CREDIT AGRICOLE SA
MUENCHENER RUECKVE
SWISS RE AG
ORANGE
United Kingdom
Energy
Financials
Healthcare
Calendarised EPS y/e Dec1

2013e/a
2014e
2015
Price ($)
14 Apr 14
Underweight
Europe Ex UK
Basic Industries
Capital Goods
Consumer Cyclicals
Currency
AUD
Overweight
COAL INDIA LTD
HINDUSTAN ZINC
NMDC LTD
POLYUS GOLD OAO
BHARAT HEAVY ELECT
ITAUSA INV ITAU SA
LG CORP
HYUNDAI MOTOR CO
KIA MOTORS CORP
CAIRN INDIA
GAZPROM
SK HOLDINGS CO LTD
BANK OF CHINA LTD
BANK OF COMMUNICAT
BCO BRADESCO SA
BCO DO BRASIL SA
CHINA CONST BK
CHINA MINSHENG BAN
TEVA PHARMA IND
SHIN CORPORATION
SAMSUNG ELECTRONIC
AMERICA MOVIL SAB
MOBILE TELESYSTEMS
TURK TELEKOMUNIKAS
INR
INR
INR
RUB
INR
BRL
KRW
KRW
KRW
INR
RUB
KRW
HKD
HKD
BRL
BRL
HKD
HKD
ILS
THB
KRW
MXN
RUB
TRY
1 EPS Estimates are based on IBES Mean Consensus

2 Relative performance shown as total return performance less performance of FTSE All World total return index.
3 Analyst rating refers to Nomura research department rating.
Past performance should not and cannot be viewed as an indicator of future performance. Complete record available upon request
43
15 April 2014
Team contacts
EQUITY RESEARCH
London
Inigo Fraser-Jenkins
Alla Harmsworth
Paul Danis
Mark Diver
Gerard Alix Guerrini
Rohit Thombre
Robertas Stancikas
Maureen Hughes
Yamini Patel
+44 207 102 4658

+44 207 102 4659
+44 207 1022418
+44 207 102 2987
+44 207 102 5079
+44 207 102 5461
+44 207 102 3127
+44 207 102 4659
+44 207 102 4257
inigo.fraser-jenkins@nomura.com
alla.harmsworth@nomura.com
paul.danis@nomura.com
mark.diver@nomura.com
gerard.guerrini@nomura.com
rohit.thombre@nomura.com
robertas.stancikas@nomura.com
maureen.hughes@nomura.com
yamini.patel@nomura.com
New York
Joseph J Mezrich
Yasushi Ishikawa
Junbo Feng
+1 212 667 9316

+1 212 667 1562
+1 212 667 9016
joseph.mezrich@nomura.com
yasushi.ishikawa@nomura.com
junbo.feng@nomura.com
Tokyo
Akihiro Murakami
Tomonori Uchiyama
Naoko Kato
Tomoyo Izumi
+81 3 6703 1746

+81 3 6703 1741
+81 3 6703 3912
+81 3 6703 1743
akihiro.murakami@nomura.com
tomonori.uchiyama@nomura.com
naoko.kato@nomura.com
tomoyo.izumi@nomura.com
FIXED INCOME QUANT RESEARCH

Anthony Morris
Gerald Rushton
Tamizhmarai Rajendran
+44 20 710 29215

+44 20 710 26016
+44 20 710 28114
anthony.morris@nomura.com
gerald.rushton@nomura.com
tamizhmarai.Rajendran@nomura.com
Srivaths Balakrishnan
Swati Aggarwal
Joon Ho Lee
+65 6433 6545

+65 6433 6546
+852 2536 7438
srivaths.balakrishnan@nomura.com
swati.aggarwall@nomura.com
joonho.lee@nomura.com
London
Bhavik Shah
Sarah McCarthy
Norman Pfeifer
Rupal Agarwal
+44 20 710 39988

+44 20 710 39988
+44 20 710 39988
+91 22 6723 5436
bhavik.shah@nomura.com
sarah.mccarthy@nomura.com
norman.pfeifer@nomura.com
rupal.agarwal@nomura.com
US
Ethan Brodie
+1 212 667 1076
ethan.brodie@nomura.com
Tokyo
Aaron Kugan
+81 3 3272 7996
aaron.kugan@nomura.com
QUANT SOLUTIONS GROUP
44
15 April 2014
45
15 April 2014
Appendix A-1
Analyst Certification
We, Inigo Fraser-Jenkins, Akihiro Murakami and Anthony Morris, 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 our compensation was, is or will be directly or indirectly related to the specific recommendations or views
expressed in this Research 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.
Analyst Specific Regulatory Disclosures

Analyst Name
Anthony Morris
Disclosures
B29
B29 An analyst who was involved in preparing the contents of this report, a member of the analysts household or other associate of the
analyst, holds a personal investment in gold.
Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura 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., on 1-877-865-5752. If you have any difficulties with the website, please email
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, a
portion 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/NYSE rules, may not be associated persons of NSI, and may not be subject to
FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held
by a research analyst account.
Nomura Global Financial Products Inc. (NGFP) Nomura Derivative Products Inc. (NDPI) and Nomura International plc. (NIplc) are
registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and
NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.
Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International
plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have
coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear.
Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows:
45% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 42% of companies with this
rating are investment banking clients of the Nomura Group*.
44% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54% of companies with
this rating are investment banking clients of the Nomura Group*.
11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 26% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 31 March 2014. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America, and
Japan and Asia ex-Japan from 21 October 2013
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 analysts 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 stated
target price, defined as (target price - current price)/current price.
STOCKS
A 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 that
the 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 or
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): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
46
15 April 2014
SECTORS
A '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 that
the 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.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A
'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price
have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is
acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled
as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should
not expect continuing or additional information from Nomura relating to such securities and/or companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflects 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, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
Disclaimers
This document contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or,
with the sole or joint contributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1
herein or identified elsewhere in the document. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or
subsidiaries and may refer to one or more Nomura Group companies including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura
International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (NIHK), Hong
Kong; Nomura Financial Investment (Korea) Co., Ltd. (NFIK), Korea (Information on Nomura analysts registered with the Korea Financial
Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (NSL), Singapore
(Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. (NAL), Australia (ABN 48 003
032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence
number 246412; P.T. Nomura Indonesia (PTNI), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (NSM), Malaysia; NIHK, Taipei Branch
(NITB), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited (NFASL), Mumbai, India (Registered Address: Ceejay
House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037
4111; CIN No : U74140MH2007PTC169116, SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034,
MCX: INE261299034) and NIplc, Madrid Branch (NIplc, Madrid). CNS Thailand next to an analysts name on the front page of a research
report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited (CNS) to provide research assistance
services to NSL under a Research Assistance Agreement. CNS is not a Nomura entity.
THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO
BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE
SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER
RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP.
Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable
and does not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent
permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use,
misuse, or distribution of this information.
Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including
the opinions and estimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document.
Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group.
Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,
seek professional advice, including tax advice. Nomura Group does not provide tax advice.
Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal,
agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative
instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or liquidity
provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is
carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately
disclosed within the specific issuer disclosures.
This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poors.
Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party.
Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and
are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such
content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or
fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary,
compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and
opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements
47
15 April 2014
of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for
investment purposes, and should not be relied on as investment advice.
Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this
information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including
any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its
affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of
originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any
of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information
have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.
Russell/Nomura Japan Equity Indexes are protected by certain intellectual property rights of Nomura Securities Co., Ltd. and Russell
Investments. Nomura Securities Co., Ltd. and Russell Investments do not guarantee the accuracy, completeness, reliability, or usefulness
thereof and do not account for business activities and services that any index user and its affiliates undertake with the use of the Indexes.
Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be
viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a
number of different types of research product including, among others, fundamental analysis, quantitative analysis and short term trading ideas;
recommendations contained in one type of research product may differ from recommendations contained in other types of research product,
whether as a result of differing time horizons, methodologies or otherwise. Nomura Group publishes research product in a number of different
ways including the posting of product on Nomura Group portals and/or distribution directly to clients. Different groups of clients may receive
different products and services from the research department depending on their individual requirements. Clients outside of the US may access
the Nomura Research Trading Ideas platform (Retina) at http://go.nomuranow.com/equities/tradingideas/retina/
Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future
performance. Where the information contains an indication of future performance, such forecasts may not be a reliable indicator of future
performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future
distribution of returns.
Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived
from, the investment.
The securities described herein may not have been registered under the US Securities Act of 1933 (the 1933 Act), and, in such case, may not
be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption
from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura
entity in your home jurisdiction.
This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised
by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NIplc is a
member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable
regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This
document is intended only for investors who are 'eligible counterparties' or 'professional clients' for the purposes of applicable regulations in the
UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK,
which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been
approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the ASIC. This document has also been
approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for the
content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients
who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document
in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless prohibited by the provisions of
Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its
contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. The entity that prepared this
document permits its separately operated affiliates within the Nomura Group to make copies of such documents available to their clients.
This document has not been approved for distribution to persons other than Authorised Persons, Exempt Persons or Institutions (as defined
by the Capital Markets Authority) in the Kingdom of Saudi Arabia (Saudi Arabia) or 'professional clients' (as defined by the Dubai Financial
Services Authority) in the United Arab Emirates (UAE) or a Market Counterparty or Business Customers (as defined by the Qatar Financial
Centre Regulatory Authority) in the State of Qatar (Qatar) by Nomura Saudi Arabia, NIplc or any other member of Nomura Group, as the case
may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than
those authorised to do so into Saudi Arabia or in the UAE or in Qatar or to any person other than Authorised Persons, Exempt Persons or
Institutions located in Saudi Arabia or 'professional clients' in the UAE or a Market Counterparty or Business Customers in Qatar . By
accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are an Authorised Person, an Exempt
Person or an Institution in Saudi Arabia or that you are a 'professional client' in the UAE or a Market Counterparty or Business Customers in
Qatar and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE
or Saudi Arabia or Qatar.
NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II)
REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A MEMBER OF NOMURA GROUP. If this document has been distributed
by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be
intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors
or omissions in the contents of this document, which may arise as a result of electronic transmission. If verification is required, please request a
hard-copy version.
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 and employee
training.
Additional 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 2014 Nomura International plc. All rights reserved.
48

Doubling Up On Momentum

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Doubling Up On Momentum

Diunggah oleh

Hak Cipta:

Format Tersedia

15 April 2014

Global Quantitative Research Monthly

See Appendix A-1 for analyst

Nomura | Global Quantitative Research Monthly