January 25, 2019
Nikko Asset Management Co., Ltd.
Takumi Shibata, Representative Director, President and CEO

Pursuing fiduciary principles and ensuring customer-first operations is the essence of the asset management business. At Nikko Asset Management (“Nikko AM”), we also aim to play a role in creating a sustainable society by continuing our efforts as a responsible institutional investor to position Environment, Society and Governance (“ESG”) assessments, as well as stewardship activities, at the heart of our investment process.

Stewardship responsibilities regarding the companies in which asset managers invest, including the exercise of voting rights, form an important part of this work. At Nikko AM, we not only do our utmost to fulfil our responsibilities in these areas, but have also established committees that provide monitoring and oversight of our activities as well as necessary advice from outside perspective that is fair and neutral.

By taking the initiative to create and put into practice our own ESG initiatives, we also aim to foster our own individual corporate culture and company values that truly serve the interests of customers and can be shared with them.

Having fully taken on board the import of the Financial Services Agency’s “Principles for Customer-oriented Business Conduct”, we constantly strive to apply the principles to all of our business activities, thus ensuring that they inform our future plans as well as our past and present efforts.

As described below, we engage in a variety of initiatives to achieve our goals, including our own ESG activities as a firm, efforts to serve the interests of our individual and corporate customers, general stewardship and ESG activities, and our long-standing governance initiatives.

1. ESG Initiatives as a Firm

As an asset manager engaged in ESG initiatives directed at investee companies, we also believe in the importance of implementing our own ESG activities as a firm.

This conviction led us to newly establish the Corporate Sustainability Department in September 2018 in order to enhance our commitment to ESG in our own business operations as well as our investment approach. Through the activities described below, we intend to continue working to serve the interests of all stakeholders with a connection to Nikko AM, from our customers and employees to our shareholders, in order to ensure that our firm is managed with a focus on long-term sustainability.

Environmental

We strive to contribute to a sustainable environment through eco-friendly offices, employee-led eco-initiatives, and minimisation of our carbon footprint.

◆Tokyo Office

Tokyo Midtown’s green area (including 1,800 m2 of rooftop greenery) forms part of the green belt connecting Aoyama, Roppongi and Akasaka.

This “green network” breathes life into the city and eases the heat island effect, while absorbing approximately 1.65 tons of CO2 per day. The facility also closely monitors and actively works to minimise energy consumption, including through promoting natural lighting and using energy efficient lights and solar power, while also recycling rainwater and kitchen wastewater.

The office works to promote energy conservation, resource sharing, and recycling, while maximizing green purchasing and complying with all laws and regulations related to the environment.

And each office is individually also working on maximum energy efficiency and reduced environmental impact. Some examples are highlighted below.

◆Nikko AM “Environmental Policy”

Nikko AM will proactively take environmental preservation issues into consideration and contribute to its sustainable development in the course of business and office activities centering on the asset management businesses.

For this purpose, it hereby sets forth the following environmental policy, sets environmental objectives and targets and reviews the same on a regular basis, and continuously improves the environmental management system.

This environmental policy will be communicated to all employees, and each employee will incorporate consideration of environmental preservation issues into his or her activities.

1.Expansion of green investors
Since asset flows from socially responsible investing (SRI) funds make significant contributions to environmental preservation, Nikko AM will make efforts to expand the number of these investors (green investors).

2.Promotion of energy conservation and resource saving in office activities
Nikko AM will make efforts to promote energy conservation, resource saving and recycling of waste, while expanding green purchasing in its offices. Furthermore, it will comply with laws and regulations related to the environment and other requirements and prevent environmental pollution.

3.Enhancement of information disclosure
Nikko AM recognizes that the establishment and enhancement of information disclosure concerning the environment as a social system will have significant importance from the standpoint of environmental preservation. Based on this recognition, Nikko AM will make efforts to enhance disclosure by proactively announcing its efforts related to the environment such as the environmental policy.

Environmental performance of Nikko AM

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 % change from the previous FY
Power usage Thousand kWh 1,068 1,025 1,026 1,071 1,029 1,057 2.7%
Total energy consumption GJ 13,928 13,280 13,317 14,022 13,441 13,807 2.7%
CO2 emissions t-CO2 532 508 510 537 530 517 -2.5%
Copy paper purchase per capita Sheet 660 628 627 672 614 548 -10.7%
Stationery green purchasing ratio % 57.2 58.6 59.6 50.6 65.0 58.8 -9.5%

Scope: Head office building (Midtown)
CO2 emissions: Specified according to Tokyo Metropolitan Environmental Protection Ordinance Calculation formula of greenhouse gas emissions (The emission factor is the same as in FY 2014)

Social

We strive to enhance social causes, both within the company by supporting a diverse and inclusive environment, and outside of the company through hands-on initiatives and charitable donations.

◆LGBT

Nikko AM is a member of LGBT Finance in Japan.

The Firm is highly committed to this effort which has both very visible grass root support and very engaged sponsorship from senior management.

◆Idea Generation Forum

Nikko AM promotes transparency and open discussion across the Firm, including on issues relating to our Social Policies. The original suggestion of an LGBT-focused effort originated in this forum, as did many other discussions that help the Firm continuously progress on its ESG journey.

◆Women's Group

Nikko AM was the first Japanese Asset Manager to be a signatory the UN Women’s Empowerment Principles.

The Firm provides for a strong support system for women, which includes the use of flex time, careful consideration of career moves, a Women's support group, in both Japan and the international offices.

◆Charitable Donations and Activities

Employees support a global cause, while complementing this with existing local outreach and charities which focus on similar causes.

Nikko AM is focused on one centralised organisation as its global cause, and has formed a partnership with Japan for UNHCR, a national partner of the United Nations High Commissioner for Refugees. Nikko AM employees are able to make donations to Japan for UNHCR on the company intranet.

There are many local charitable support initiatives, which the Firm strongly encourages. They have an overarching theme (children/children and education) but will be selected by local employees. In Japan, the three chosen charities for 2017/2018 are Wheelchairs for Children Living Overseas, Fair Start Support (supporting children leaving welfare institutions) and Mirai No Mori (providing English language lessons and outdoor programmes to children in welfare institutions).

Governance

Our role as an asset manager is not only to seek improvements in the governance of the firms in which we invest but to continuously ensure that our own governance is at a world-class level. Our activities in this area, which are described below, stem from our conviction that the three pillars of governance are management governance, voting rights governance, and fund governance.

We position our governance activities among the most important of our corporate activities, and all of our efforts in regard to voting rights governance and fund governance—as well as the obvious example of management governance—are directly reported on to our Board of Directors. Furthermore, based on our conviction that the best governance can only be achieved with scrutiny from outside, we strive to maintain independent oversight by ensuring that our Board of Directors is chaired by an independent, outside director, and by appointing even more outside directors to our Board of Directors than the number required of listed firms. We also ensure strict independence in the governance of our voting rights activities and funds by entrusting it to committees that not only consist of a majority of outside members but have their chairs appointed from among those outside members.

(1) Management governance

As befits a firm entrusted with managing the assets of customers, our business operations are presided over by a senior management team that is well versed in asset management. Our approach to securing management talent is predicated on our strong belief that having such a team in place gives Nikko AM the strongest possible foundations.

Our appointment of Yoichiro Iwama as an outside director and Chairman of the Board of Directors in May 2018 helped to strengthen our governance by bringing in his independent perspective and extensive knowledge to benefit Nikko AM. Mr. Iwama’s participation has further invigorated our Board of Directors, enhanced the transparency of its decision-making process for important business management matters, and generated lively discussions on issues including how to enhance our asset management capabilities. By having debates and discussions based on the respective areas of experience and knowledge of our directors and outside directors, we constantly examine ways of refining our vision for the future of Nikko AM and differentiating it from competitors with a forward-looking perspective on the asset management industry as a whole.

As of January 2019, Nikko AM’s Board of Directors has five independent, outside directors (including the Chairman of the Board of Directors), four of whom are pure outsiders who have no capital relationships with the company. This ensures high levels of independence and transparency in our governance relative to our industry peers.

(2) Voting rights governance

We established the Stewardship and Voting Rights Policy Oversight Committee in June 2016 as a way of improving transparency in our stewardship activities such as engaging with firms and exercising voting rights as well as strengthening our governance. Drawing the majority of its members from outside the company, the committee is the first such third-party body to be established at a Japanese asset management company. It holds meetings once a quarter in principle and provides a venue for outside committee members to have lively discussions on how Nikko AM exercises its voting rights. The committee has held a total of 12 meetings so far. Please refer to the Appendix (PDF) for details of its activities.

(3) Fund governance

We established the Fund Advisory Board, whose members are also mostly from outside Nikko AM, in September 2017. The Fund Advisory Board meets every quarter in principle. The board has met a total of three times since January 2018 and its outside members participate in debates at its meetings. Please refer to the Appendix (PDF) for details of its activities.

2. Activities for individual and corporate clients

(1) Activities for individual clients

As an asset management company, our paramount mission is to be useful to our customers in their medium-to long-term asset building. Realizing this mission is not just a case of delivering strong investment management outcomes, however. We also need to put a great deal of effort into every aspect of our services, including understandably and simply imparting accurate knowledge of investment management and the products we offer, proactively delivering timely and appropriate information on market trends from a neutral standpoint to help customers make investment decisions, providing products that are suitable for medium-to long-term investment that serves customer needs, and helping customers to manage risks.

Our initiatives in this area, together with the results we have delivered to date, are detailed below.

① Number of seminars held

We deliver our products via channels including the sales teams of the distributors we work with and the internet. The information we provide to retail investors, as well as our efforts to supply appropriate information and training to salespeople, contribute to the final investment decisions made by individuals. The extensive framework we have in place enables us to hold 1,500 seminars for retail investors and over 5,000 training sessions for salespeople annually.

② Information provision under Nikko AM Academy brand

Main investment information sources provided as series Frequency Additional information
Rakuyomi Twice weekly 141 released in 2018
Koyomi Monthly
Gokuyomi Monthly
Market 5 Minutes Monthly
Weekly Market Weekly
Data Watch Weekly
Follow-up Memo Irregular 14 released in 2018
Global REIT Weekly Weekly
Monthly Market Monthly
JAPAN in Motion Monthly
Nikko AM Newsletter Irregular 14 released in 2018
CHINA INSIGHT Irregular 7 released in 2018
KAMIYAMA Reports Irregular 33 released in 2018
KAMIYAMA Seconds! Irregular 44 released in 2018
Why should we invest? Irregular 10 released in 2018
Robotics Report Twice monthly
What You Should Know About the Market Irregular 1 released in 2018
We strive to contribute to the asset building of customers by providing neutral investment information. Under our Fund Academy brand, we provide fund-related knowledge and information that we judge to be essential, not only to retail investors and distributors but also to non-customers. In addition to the titles shown in the table, our website contains videos, e-learning documents, simulation tools and other such information sources.

③ Average holding periods of top ten funds for AUM

Rank Fund name Expected Average holding period (years) AUM (JPY 100M) Fund investment universe/type
1 Nikko LaSalle Global REIT Fund (Monthly Dividend Payment Type) 2.79 4,825 Foreign REIT/active
2 Global Robotics Equity Fund (Semi-annual Settlement Type) 6.04 4,021 Foreign equity/active
3 Global Robotics Equity Fund (Annual Settlement Type) 3.27 3,861 Foreign equity/active
4 Nikko Triple Fund (Property Bond Equity) Monthly Dividend Payment Type 9.07 3,497 Balanced
5 Smart Five (Monthly Settlement Type) 13.89 2,872 Balanced
6 Nikko Index Fund 225 3.02 2,093 Japanese equity/passive
7 Global Fintech Equity Fund 1.98 1,786 Foreign equity/active
8 Nikko Developed Countries High Yielding Bond Open (Monthly Dividend Payment Type) 4.18 1,459 Foreign bond/active
9 Global Fintech Equity Fund (Semi-annual Settlement Type) 6.97 951 Foreign equity/active
10 Japan Robotics Equity Fund (Annual Settlement Type) 2.33 732 Japanese equity/active

* Expected average holding period is theoretical calculated by "annual average AUM ÷ annualized redemption amount" (calculation period is year 2018). The figure is different from the actual average holding period of the investor.
* Funds with very small redemption amount compared with the subscription amounts or AUM may result in longer period than the actual holding period.
* AUM as of 2018/12/28

④ AUM and number of asset-building funds (annual or semi-annual annual account settlement)

As an asset management company, our paramount mission is to be useful to our customers in their long-term asset building. The asset management business is one in which firms can only grow if they also grow their customers’ assets. We are therefore increasing the number of our funds that have settlement dates once or twice yearly, which are appropriate for long-term asset building. As of December 2018, such funds at Nikko AM had a total AUM of about JPY 8.7 trillion. When comparing March 2018 and December 2018, while the number of funds whose settlements is not more than twice a year is decreasing, total AUM is almost flat, demonstrating gradual enhancement in efficiency of our funds.

Main publicly offered funds capable of stably delivering medium- and long-term returns that we deem suitable for customers' asset-building needs

Fund investment target Fund name Distribution frequency AUM (JPY 100M)
Japanese Equities/Active Japan Robotics Equity Fund Annual, semiannual 970
Nikko Japan Open Annual 332
Nikko DC J Growth Annual 217
Foreign Equities/Active Global Robotics Equity Fund Annual, semiannual 8,384
Global Fintech Equity Fund Annual, semiannual 2,929
Foreign Bonds/Active Nikko Developed Countries High Yielding Bond Open (Growth Type) Annual 103
Balanced Smart Five (Annual Settlement Type) Annual 341
Fine Blend (Growth Type) Annual 142
Nikko GW7 Eggs Annual 535
Nikko Triple Fund (Property Bond Equity) Growth Type Annual 87
Global Three Times Triple Fund (Annual Settlement Type) Annual 2

* AUMs are as of end-December 2018

⑤ Initiatives for cumulative investment including cumulative Nippon Individual Savings Accounts

Our efforts to meet cumulative investment needs are not just confined to cumulative NISA, however, as we are also working to promote the use of defined contribution plans, individual-type defined contribution pension plans and general account for such purposes. With these products, we are advocating long-term, cumulative and diversified investments to those who wish to build up their assets. We also provide assistance to distributors for cumulative investment initiatives by not only providing products but also creating and offering a variety of support tools.
Having completed the registration of one of our funds for eligibility in the cumulative NISA system, we are now preparing to obtain the same registration for multiple Exchange Traded Fund (“ETF”) products.
We also held a “Product Strategy Seminar” for distributors in July 2018, at which we emphasized the effectiveness of cumulative investment in enhancing returns for investors.

⑥ AUM and Performance of Japan-domiciled publicly offered funds

We consider our investment division as a team of professionals in which fund managers and analysts forge their own career paths. We also employ an appraisal/compensation structure that emphasizes medium- and long-term investment performance. This is supported by a global system we have introduced to retain key fund managers.

Out of the total assets in the publicly offered funds that we manage on behalf of our customers (as of December-end 2018), equity investment funds accounted for 70%, bond investment funds (including MRFs) accounted for 22%, and multiple asset investment funds/other funds accounted for 8% of the total.

Equity investment funds: largest returns in past three years

Rank Fund name Launch date AUM (JPY 100M) Return (inc. dividends) (%)
Since launch 5 years 3 years 1 year
1 Nikko Growing Venture Fund Jul-03 236 316% 123% 99% -14%
2 Japanese Emerging Equity Open Dec-96 194 353% 91% 55% -14%
3 Natural Resources Equity Fund Currency Selection Series <Brazilian Real Course> (Monthly Dividend Payment Type) Nov-09 288 -31% -36% 20% -30%
4 Natural Resources Fund (Equity and Currency) Brazilian Real Course Jul-09 149 -25% -36% 20% -30%
5 Global Robotics Equity Fund (Annual Settlement Type) Aug-15 3,861 23% - 17% -19%
6 Global Robotics Equity Fund (Semi-annual Settlement Type) Aug-15 4,021 23% - 17% -19%
7 Index Fund Emerging Equity Apr-08 134 17% 9% 15% -18%
8 Listed Index Fund J-REIT (Tokyo Stock Exchange REIT Index) Bi-Monthly Dividend Payment Type Oct-08 2,252 251% 38% 13% 11%
9 Nikko Index Fund J-REIT Oct-04 239 107% 36% 12% 10%
10 Listed Index Fund 225 Jul-01 26,131 103% 33% 11% -11%
(Reference index: Japanese equity) TOPIX 15% -3% -18%
(Reference index: foreign equity) MSCI All Country World Index (ex. Japan, no hedge, JPY-based) 17% 3% -14%

* Publicly offered open-end funds. AUMs are as of end-December 2018. Funds with AUMs below JPY 10 billion are excluded.

Bond investment funds: largest returns in past three years

Rank Fund name Launch date AUM (JPY 100M) Return (inc. dividends) (%)
Since launch 5 years 3 years 1 year
1 Emerging High Yield Bond Fund Brazilian Real Course Dec-10 125 21% 5% 27% -20%
2 Nikko PIMCO High Income Sovereign Fund Monthly Dividend Payment Type (US Dollar course) Sep-03 184 122% 22% 11% -6%
3 Listed Index Fund Emerging Bond Jan-12 170 34% -1% 3% -8%
4 Nikko World Bank Bond Fund (Monthly Dividend Payment Type) Jun-07 167 -13% -13% -2% -7%
5 Asia Corporate Bond Fund B Course (No Currency Hedge) Nov-12 241 52% 19% -2% -4%
(Reference index) FTSE World Government Bond Index (ex. Japan, no hedge, JPY-based) 9% -2% -4%

* Publicly offered open-end funds. AUMs are as of end-December 2018. Funds with AUMs below JPY 10 billion are excluded.

Multiple asset investment funds/other funds: largest returns in past three years

Rank Fund name Launch date AUM (JPY 100M) Return (inc. dividends) (%)
Since launch 5 years 3 years 1 year
1 Nikko Ashmore Emerging Markets Tri-Asset Fund Monthly Dividend Payment Type (Brazilian Real Course) Feb-10 164 31% 12% 29% -18%
2 Nikko Triple Fund (Property Bond Equity) Monthly Dividend Payment Type Aug-03 3,497 98% 17% 7% -3%
3 Nikko Japan Trend Select(Hyper Wave) Jan-95 123 -62% 40% 7% -23%
4 Smart Five (Monthly Settlement Type) Jul-13 2,872 20% 16% 7% -4%
5 Smart Five (Annual Settlement Type) Jul-13 341 20% 16% 7% -4%

* Publicly offered open-end funds. AUMs are as of end-December 2018. Funds with AUMs below JPY 10 billion are excluded.

Top 10 funds in performance for the past one year

Rank Fund name Launch date AUM (JPY 100M) Return (inc. dividends) (%)
Since launch 5 years 3 years 1 year
1 Listed Index Fund J-REIT (Tokyo Stock Exchange REIT Index) Bi-Monthly Dividend Payment Type Oct-08 2,252 251% 38% 13% 11%
2 Nikko Index Fund J-REIT Oct-04 239 107% 36% 12% 10%
3 No-Load J-REIT Focus (Monthly Dividend Payment Type) Jul-13 3 56% 39% 11% 9%
4 Nikko Japan Trend Select(Reverse Trend Open) Jan-95 27 -59% -40% -22% 6%
5 No-Load JGB Focus (Monthly Dividend Payment Type) Feb-11 7 26% 15% 6% 1%
6 Nikko Index Fund Japanese Fixed Income (DC) Nov-03 26 27% 8% 3% 1%
7 Nikko DC Index Fund Japanese Bond (IRA) Dec-01 4 23% 7% 3% 1%
8 Index Fund Japanese Fixed Income (Annual Settlement Type) Oct-01 89 23% 7% 3% 0%
9 Nikko PIMCO High Income Sovereign Fund Monthly Dividend Payment Type (Mexico Peso course) Jan-13 11 4% -4% 9% 0%
10 Japan Public Bond Fund 2023 Jan-14 2 5% - 1% 0%

* Publicly offered open-end funds. AUMs are as of end-December 2018. Funds with AUMs below JPY 10 billion are excluded.

⑦Fund Efficiency Initiatives

Our belief is that it is imperative for asset managers to constantly develop and manage more attractive and effective products for investors. This means that it is of paramount importance for us to create an environment in which our investment management resources—in other words, our highly capable investment managers—can fully devote their time and abilities to full-time specialization in fund management. We believe that creating such an environment helps to deliver long-term returns to investors.

At the same time, there may be cases where a fund’s AUM shrinks to a level below the minimum amount required for management, making it difficult to achieve the investment management goal set at the time of its launch or raising the cost of managing the fund to a comparatively high level. This can reduce the ability of a fund to deliver the level of investment performance that customers demand even in the medium to long term.

At Nikko AM, we feel it is important to have a structure in place that enables us to maintain our high-performing existing funds and secure the internal resources needed to develop and manage the new funds that our customers expect not only by terminating smaller funds when they reach maturity but by terminating them early if necessary. We carried out early terminations of 22 funds between January and December of 2018.

⑧ Change in distribution pattern for medium- and long-term investment: Japan-domiciled publicly offered funds

The ratio of publicly offered funds (excluding ETFs) that pay out monthly dividends is falling and stood at 45% as of December 2018.

⑨ Risk/return profile of major funds in past two years (as of December-end 2018)

⑩ Risk/return profile of major foreign equity funds in past two years (as of December-end 2018)

Note: For Natural Resources Equity Fund, risk-return figures for the USD course (converted to JPY), a major fund in the same strategy, were used.

⑪ Risk/return profile of major Japanese equity funds in past two years (as of December-end 2018)

⑫ Risk/return profile of major foreign bond funds in past two years (as of December-end 2018)

Note: For Nikko PIMCO High Income Sovereign Fund, risk-return figures for the USD course (converted to JPY), a major fund in the same strategy, were used.

⑬ Risk/return profile of major global REIT funds in past two years (as of December-end 2018)

⑭ Risk/return profile of major balanced funds in past two years (as of December-end 2018)

⑮ Sharpe ratios of major funds in past three years (as of December-end 2018)

Dec-18 A B A/B
Fund name AUM (JPY 100M) Launch date Excess Return (Annualized) Standard Deviation Sharpe Ratio
1 Nikko LaSalle Global REIT Fund (Monthly Dividend Payment Type) 4,825 Mar-04 -2.18% 13.60% -0.16
2 Global Robotics Equity Fund (Semi-annual Settlement Type) 4,021 Aug-15 5.47% 17.50% 0.31
3 Nikko Triple Fund (Property Bond Equity) Monthly Dividend Payment Type 3,497 Aug-03 2.47% 7.05% 0.35
4 Smart Five (Monthly Settlement Type) 2,872 Jul-13 2.36% 3.79% 0.62
5 Nikko Developed Countries High Yielding Bond Open (Monthly Dividend Payment Type) 1,459 Aug-03 -2.76% 6.77% -0.41
6 Greater China Equity Fund (Monthly Dividend Payment Type) 557 Oct-10 -5.56% 19.08% -0.29
7 Nikko GW7 Eggs 536 Feb-03 0.80% 11.16% 0.07
8 Nikko Five Continents Bond Fund (Monthly Dividend Payment Type) 533 Jun-06 -1.38% 6.94% -0.20
9 Nikko AMP Global REIT Fund Monthly Dividend Payment Type A (No Hedge) 378 Jan-04 -4.81% 13.67% -0.35
10 Nikko PIMCO High Income Sovereign Fund Monthly Dividend Payment Type (US Dollar course)(Note3) - Sep-03 3.56% 7.43% 0.48
11 Nikko Japan Open 333 Aug-98 1.91% 15.81% 0.12
12 Nikko World Triple Fund (Property Bond Equity) Monthly Dividend Payment Type 304 Sep-05 0.72% 7.61% 0.09
13 Natural Resources Equity Fund Currency Selection Series <US Dollar Course> (Monthly Dividend Payment Type) (Note2) - Sep-13 0.76% 19.41% 0.04
14 Nikko Profit Return Growth Stock Open 267 Jun-91 1.89% 15.60% 0.12

Note 1: LIBOR1M was used for the risk-free rate.
Note 2: For Natural Resources Equity Fund, risk-return figures for the USD course (converted to JPY), a major fund in the same strategy, were used.
Note 3: For Nikko PIMCO High Income Sovereign Fund, risk-return figures for the USD course (converted to JPY), a major fund in the same strategy, were used.

⑯ Sharpe ratios of major funds in past one year (as of December-end 2018)

Dec-18 A B A/B
Fund name AUM (JPY 100M) Launch date Excess Return Standard Deviation Sharpe Ratio
1 Nikko LaSalle Global REIT Fund (Monthly Dividend Payment Type) 4,825 Mar-04 -6.29% 14.86% -0.42
2 Global Robotics Equity Fund (Semi-annual Settlement Type) 4,021 Aug-15 -18.60% 19.45% -0.96
3 Nikko Triple Fund (Property Bond Equity) Monthly Dividend Payment Type 3,497 Aug-03 -3.40% 7.61% -0.45
4 Smart Five (Monthly Settlement Type) 2,872 Jul-13 -3.80% 2.93% -1.29
5 Global Fintech Equity Fund 1,786 Dec-16 -8.84% 24.02% -0.37
6 Nikko Developed Countries High Yielding Bond Open (Monthly Dividend Payment Type) 1,459 Aug-03 -6.15% 4.98% -1.24
7 Japan Robotics Equity Fund (Annual Settlement Type) 732 Jan-16 -19.28% 18.78% -1.03
8 Greater China Equity Fund (Monthly Dividend Payment Type) 557 Oct-10 -26.11% 19.30% -1.35
9 Nikko GW7 Eggs 536 Feb-03 -11.40% 11.20% -1.02
10 Nikko Five Continents Bond Fund (Monthly Dividend Payment Type) 533 Jun-06 -4.58% 5.65% -0.81
11 Shenzhen Innovation Equity Fund (Annual Settlement Type) 440 Nov-17 -34.90% 17.11% -2.04
12 Nikko AMP Global REIT Fund Monthly Dividend Payment Type A (No Hedge) 378 Jan-04 -9.66% 14.28% -0.68
13 New Silk Road Economies Fund 362 Sep-17 -22.52% 14.53% -1.55
14 Nikko PIMCO High Income Sovereign Fund Monthly Dividend Payment Type (US Dollar course) (Note3) - Sep-03 -5.66% 6.91% -0.82
15 Nikko Japan Open 333 Aug-98 -19.02% 17.54% -1.08
16 Nikko World Triple Fund (Property Bond Equity) Monthly Dividend Payment Type 304 Sep-05 -5.32% 7.93% -0.67
17 Natural Resources Equity Fund Currency Selection Series <US Dollar Course> (Monthly Dividend Payment Type) (Note2) - Sep-13 -18.48% 19.04% -0.97
18 Nikko Profit Return Growth Stock Open 267 Jun-91 -17.54% 16.84% -1.04

Note 1: LIBOR1M was used for the risk-free rate.
Note 2: For Natural Resources Equity Fund, risk-return figures for the USD course (converted to JPY), a major fund in the same strategy, were used.
Note 3: For Nikko PIMCO High Income Sovereign Fund, risk-return figures for the USD course (converted to JPY), a major fund in the same strategy, were used.

⑰ Investor returns of major funds (periods since launch)

Fund name Investor Return (Annualized) NAV Return(Annualized)
Nikko LaSalle Global REIT Fund (Monthly Dividend Payment Type) 9.30% 4.19%
Global Robotics Equity Fund (Annual Settlement Type) 5.60% 6.53%
Global Robotics Equity Fund (Semi-annual Settlement Type) -1.48% 6.47%
Nikko Triple Fund (Property Bond Equity) Monthly Dividend Payment Type 0.81% 4.61%
Smart Five (Monthly Settlement Type) 0.10% 3.52%
Global Fintech Equity Fund 3.59% 14.30%
Global Fintech Equity Fund (Semi-annual Settlement Type) -19.90% 0.79%
Nikko Developed Countries High Yielding Bond Open (Monthly Dividend Payment Type) 3.33% 3.80%
Japan Robotics Equity Fund (Annual Settlement Type) -4.96% 7.00%
Japan Robotics Equity Fund (Semi-annual Settlement Type) -7.84% 6.98%
Greater China Equity Fund (Monthly Dividend Payment Type) -8.48% 2.60%
Nikko GW7 Eggs 0.22% 5.23%
Nikko Five Continents Bond Fund (Monthly Dividend Payment Type) -0.01% 2.65%
Shenzhen Innovation Equity Fund (Annual Settlement Type) -40.13% -32.89%
New Silk Road Economies Fund -14.91% -13.41%
Nikko AMP Global REIT Fund Monthly Dividend Payment Type A (No Hedge) 7.72% 5.30%
Nikko Japan Open -4.33% 2.25%
Natural Resources Equity Fund Currency Selection Series <Brazilian Real Course> (Monthly Dividend Payment Type) -3.07% -4.09%
Nikko PIMCO High Income Sovereign Fund Monthly Dividend Payment Type (Turkey Lira course) -0.19% 1.28%
Nikko World Triple Fund (Property Bond Equity) Monthly Dividend Payment Type -5.26% 3.55%

(2) Activities for corporate clients

① Number of accounts utilizing risk management tool for institutional investors

Our starting point for institutional investors is to find out our customers' needs, and to work hard to meet those needs. In our sales activities, we then propose products in line with each customer's level of risk tolerance. As a part of these efforts, in December 2017 we launched a tool and used it to start providing support to help our corporate investor customers improve their risk management. As of end-December 2018, the support tool was being used for 94 accounts.

② Number of fund awards won

We work daily to develop products that serve the interests of our customers. In the past year (January-December 2018), external assessment institutions have given awards to two of our Japanese equity funds, one of our Japanese bond funds, six of our foreign equity funds, four of our foreign bond funds and eight of our balanced funds, recognizing a total of 21 of our funds.
* Aggregation of awards from R&I Fund Awards, Fund of the Year (Morning Star) and Lipper Fund Awards.

3. Stewardship activities

We believe that it is one of our key responsibilities as an asset manager to help the companies in which we invest to improve the value they offer to investors by vigorously pursuing our stewardship activities including the exercise of voting rights. We constantly work to ensure that our activities are sustained and steadily improved upon. At the same time, we incorporate the concept of ESG into all of our investment management processes and perform assessments of the corporate value of firms—including their non-financial information—in order to promote medium- and long-term improvements as well as sustainable growth, and this approach is useful in our investment decision-making process. We also organized the ESG Global Steering Committee in order to further expand the global reach of our ESG efforts. Comprised of leaders in our investment management operations in Japan and overseas, the committee deliberates over matters such as ESG initiatives, ways of putting them into practice, and new approaches.
Our initiatives and results to date in the above-mentioned areas are as follows.

① Engagement results

Our fund managers and analysts have always been proactively involved in engagement and proxy voting in order to help firms in which our active strategies invest improve their corporate value. We have worked since 2013 to boost the corporate value of a wide range of firms, including their ESG levels, by starting to assign CSV scores (a way of giving firms comprehensive assessments that include ESG scores). Since then we have assessed over 600 firms with a focus on helping them to achieve sustainable growth and enhance their corporate values in the medium to long term. In March 2017, we launched a body devoted to activities to promote better corporate and shareholder value for Japanese names in which we invest (about 2,200 firms), including in our passive strategies.
These initiatives have further improved our ability to engage with firms and exercise our voting rights in order to help maximize the corporate value of firms. In 2018 (Apr-Dec) we engaged with 1,238 firms, and in the same period the number of instances of engagement we had was 2,920.

② Voting track record

1. Company-generated proposals

Proposal July 2017 - June 2018
Yea Nay Subtotal Nay ratio
Proposal on company Election/dismissal of directors 14,183 2,934 17,117 17.1%
(Reference) Number of companies 1,252 832 2,084 39.9%
Election/dismissal of corporate auditors 1,568 162 1,730 9.4%
(Reference) Number of companies 893 135 1,028 13.1%
Selection of accounting auditors 40 0 40 0.0%
Proposal on executive remuneration Executive remuneration 422 3 425 0.7%
Retirement benefit payments 162 26 188 13.8%
Proposal on capital policy (Except proposals concerning the articles of incorporation) Appropriation of surpluses 1,374 135 1,509 8.9%
Restructuring 43 11 54 20.4%
Introduction, update, abolition of takeover defense measures 0 62 62 100.0%
Other proposals on capital policy 387 78 465 16.8%
Partial revision to articles of incorporation 510 41 551 7.4%
Other 0 1 1 100.0%
Total 18,689 3,453 22,142 15.6%

2. Shareholder proposals

Proposal July 2017 - June 2018
Yea Nay Subtotal Nay ratio
Proposal on company Election/dismissal of directors 5 41 46 10.9%
(Reference) Number of companies 2 15 17 11.8%
Election/dismissal of corporate auditors 0 0 0 0.0%
(Reference) Number of companies 0 0 0 0.0%
Selection of accounting auditors 0 0 0 0.0%
Proposal on executive remuneration Executive remuneration 0 7 7 0.0%
Retirement benefit payments 0 0 0 0.0%
Proposal on capital policy (Except proposals concerning the articles of incorporation) Appropriation of surpluses 6 5 11 54.5%
Restructuring 0 0 0 0.0%
Introduction, update, abolition of takeover defense measures 2 0 2 100.0%
Other proposals on capital policy 0 0 0 0.0%
Partial revision to articles of incorporation 0 0 0 0.0%
Other 12 86 98 12.2%
Total 25 139 164 15.2%
It is our responsibility as an institutional investor to help the companies we invest in to improve their value and grow sustainably through our stewardship activities, including the exercise of voting rights. In addition, we understand the importance of strengthening our own governance and increasing transparency for those outside the company. With this in mind, we established the Stewardship and Voting Rights Policy Oversight Committee in June 2016. Not only is the committee’s chairperson an outside officer, but the majority of its members are from outside Nikko AM, thus ensuring its independence. The committee holds quarterly meetings at which it decides Nikko AM’s policy for the exercise of voting rights from a neutral standpoint, monitors our exercise of voting rights as one of its oversight responsibilities, and provides other forms of guidance.

③ ESG initiatives

Since launching the Nikko Eco Fund in 1999, which invests in environmentally friendly firms and is Japan’s first Socially Responsible Investing (“SRI”) fund, we have incorporated ESG factors in all of our investment management processes based on our understanding that they contribute to medium- and long-term corporate value. We also constantly introduce new initiatives in order to put our EGS activities into practice more effectively. Since August 2013, we have been applying the principle of Creating Shared Value (“CSV”; the practice of creating value for society and firms by aligning efforts to solve societal issues with corporate interests and pursuing both goals simultaneously) by having our analysts formulate unique CSV scores that incorporate comprehensive assessments of firms’ financial standings, market competitiveness levels and ESG initiatives, and use them in their stock selections. We currently formulate scores for 600 stocks listed on the Tokyo Stock Exchange from a medium- to long-term perspective. We have already built up a track record of over five years of assessment and engagement based on our analysts’ close engagement with the 600 firms whose CSV scores we assess and their daily work to improve corporate value including ESG.
Our other initiatives are as described below.

Principles of Responsible Investing (PRI) ratings from assessment institutions

2018 2017 2016
Approach to responsible investing (overall assessment) A+ A+ A+
Incorporation of responsible investing in listed stocks A+ A+ A
Active ownership in listed stocks Engagement A+ A+ A
Exercise of voting rights A+ A+ A+

Funds focused on Socially Responsible Investing (SRI)

Investment target Fund name AUM (JPY 100M)
Japanese Equities Nikko Eco Fund 74
Nikko DC Eco Fund 6
Foreign Bonds Nikko World Bank Bond Fund (Monthly Dividend Payment Type) 167
SMBC Nikko World Bank Bond Fund 19
World Bank Green Bond Fund 38

* AUMs are as of end-December 2017. * Open-end, publicly offered funds.

We have been a signatory to the United Nations’ Principles for Responsible Investment (PRI) since 2007. Our pioneering approach as an investment manager demonstrates our commitment to contributing to medium- and long-term corporate value and sustainable responsible investment. Our overall PRI approach has been awarded the top assessment level (A+) for the past three straight years (out of six levels from A+ to E). Since launching a body specializing in this area in March 2013, we have expanded the number of firms whose ESG we research from the previous number of about 950 (active strategy investment universes) to 2,000 by adding firms in which our passive strategies invest to the scope of our research.

[In conclusion]

Engagement regarding fiduciary principles and ESG principles are continuous efforts that will never come to an end, and all officers and employees at Nikko AM will continue making their utmost efforts to put the principles into practice. We will continually provide updates on those efforts.

Furthermore, we intend to take our role a step further by switching the focus of our role in fulfilling our fiduciary duties from protecting the interests of customers to promoting the interests of customers.

Engagement Regarding Fiduciary/ESG Principles (May 1, 2017)
Engagement Regarding Fiduciary/ESG Principles (January 26, 2018)