Introduction to “JPX-Nikkei Index 400”

November 2013

On the 6th November the Japan Exchange Group, Tokyo Stock Exchange and Nikkei announced
that they will begin calculating the “JPX-Nikkei Index 400” from the 6th January 2014. It is believed
that the Government Pension Investment Fund(GPIF), the largest pension fund in the world with
USD 1 trillion of assets, will begin investing in the index upon its commencement. The index is also
likely to promote discussion over “Smart Beta” products in Japan.
■ Overview of the Index
The new index is composed of 400 companies with a high appeal to investors, which meet
specific requirements of the efficient use of capital and investor-focused management perspectives.
The selection is based on quantitative criteria, including ROE for efficient use of capital, as well as
other financial indicators.
■Selection Process ■Constituent Selection Method
Number of
400
constituents
TSE-listed issues TSE-listed issues (1st Section, 2nd Section, Mothers,
Eligible Issues
JASDAQ)

Screening by Eligibility Criteria The process includes;

/ Market Liquidity Indicator ・Excluding names listed for less than 3 years and with
Constituent
liabilities in excess of assets
Selection/Review
・Top 1,000 issues in terms of trading volume during
Method
the most recent 3 years and market capitalization on
1000 issues the base date

Overall score is determined by aggregating the

following ranking scores;
Quantitative Scoring Quantitative Scoring i ) 3-year average ROE(40%),
ii) 3-year cumulative operating profit(40%) and
3-year average ROE iii) Market capitalization(20%)

Overall score is determined by aggregating the

3-year cumulative following ranking scores;
operating profit Qualitative Scoring i ) Appointment of Independent Outside Directors,
ii) Adoption of IFRS and
iii) Disclosure of English Earnings Information
Market capitalization on
the base date 400 issues selected in descending order of high
Determination of
scores based on aggregated scores of quantitative
Constituents
and qualitative scoring.

Weights of Free-float adjusted market capitalization-weighted

constituents (with 1.5% cap)
Qualitative Scoring
Base date for selection: The last business day of June
Constituent review date: The last business day of
Constituent August
400 issues Selection/Review (*Preferential rule for constituents of the prior year:
Method The constituents ranked above 440th in the final score
stay as constituents. Otherwise, constituents are
selected in the order of the aggregated scores.)
Review of free-float
4 times a year (January, April, July and October)
ratio
January 6, 2014
Start of Calculation
August 30, 2013 / 10,000 points

Source：Japan Exchange Group

 ■ Profile of JPX-Nikkei Index 400
The following is the analysis on the simulated JPX-Nikkei Index 400. Simulated historical returns of
the Index have outperformed the TOPIX from September 2006. As for the profile of the index, it
has a bias toward large caps and exposures to the Transportation Equipment and Bank sectors are
lower, due to their large original components in the market against a 1.5% constraint on allocations
for the index.
Performance

JPX-Nikkei 400

JPX-Nikkei 400 accumulated excess

return against TOPIX (right axis)

TOPIX

*Base date = August 31, 2006, Base point = 10000

Risk profile compared with TOPIX Diversion from TOPIX Sectors

Estimated TE 1.11 -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0%

Beta 0.988 Fishery, Agriculture & Forestry

Mining
Sector Risk 0.453 Construction
Foods
Risk Index 0.659 Textiles and Apparels
Pulp and Paper
Specific Risk 0.784 Chemicals
Pharmaceutical
Oil and Coal Products
Risk Indices Rubber Products
Volatility Glass and Ceramics Products
Non-Membership 0.2 Iron and Steel
Size
In Tse Nonferrous Metals
0.1
Membership In Metal Products
0.0 Momentum Machinery
Tse2
Electric Appliances
-0.1
Transportation Equipment
Membership In
Nk225
-0.2 Trading Activity Precision Instruments
Other Products
Electric Power and Gas
Land Transportation
Foreign Sensitivity Value
Marine Transportation
Interest Rate Air Transportation
Financial Leverage Warehousing and Harbor Transportation …
Sensitivity
Growth Information & Communication
Wholesale Trade
Market membership Retail Trade
Banks
TSE1 386 Securities and Commodity Futures
Insurance
TSE2 1 Other Financing Business
Real Estate
Mothers 2 Services

JASDAQ 11 Source：Japan Stock Exchange and SuMi TRUST

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