When the stock market expands the leading German Dax index to 40 stocks on Monday, it will even have to reprogram the famous price table in the trading room. Where until now there were 15 stocks on either side of the country’s most famous price curve, stockholders now have to accommodate 20 stocks each. The reform also affects savers in this country, as many people invest a small amount month after month in ETFs (exchange Traded Index Followers), which follow the first German index face-to-face. Do you now also have to screw your own deposit? The SZ answers the most important investment questions regarding the reform of the index.
Does the Dax now jump in price?
With ten new titles in the Dax, one or the other is certainly hoping for a miraculous price increase overnight. But the disappointing news: “There will be no price increase,” says asset manager Markus C. Zschaber of VMZ Vermögensverwaltung. Instead, the stock market is simply pushing the weight of the 30 long-established stocks in the benchmark down about 15% in order to create enough space for the ten new stocks. In the future, Airbus aircraft manufacturers, Qiagen corona testers and Hellofresh cookbox distributors will also be part of the new “Dax 40” – a mixed bag.
Will the Dax be more boosted with new members?
Superficially yes. Many investors have been electrified for weeks that with Hellofresh and online fashion retailer Zalando, new internet stocks could bring more dynamism to the index. Siemens Healthineers, medical testing experts at Qiagen and laboratory supplier Sartorius also include three pharmaceutical stocks in the index. “As a result, the Dax receives a supply of fresh blood,” says capital market strategist Robert Halver of Baader-Bank. Part of the bigger picture, however, is that the new stocks in the index will have virtually no weight to begin with. So they are literally full of hope. Only if they got bigger and bigger in the future would they really drag the whole index.
To what extent does the modified Dax still reflect the “old economy”, ie the traditional economy?
Many investors are already eagerly awaiting Dax in a new form: fewer cars, more pharmaceuticals. However, these titles are more than shortened, as the simulations show. If investors add up the supposed sectors of the old economy of chemicals, automobiles, industry, transport, utilities and construction, the weight of these cycle-sensitive industrial sectors in the index should not switch. At first glance it may seem confusing, after all new internet titles are being added to the index. Zalando and Hellofresh together are expected to represent only around 2% of the new Dax 40. While IT stocks are now clearly over-represented in many US indices, they will likely remain underweight in Germany even after the reform.
Investors should not bring the Dax down too quickly. “Dismissing the Dax as an index of the old economy would be too easy,” says Silke Schlünsen of investment bank Stifel. After all, many supposedly “old” industrial companies are just starting their digital or green transformation and could themselves be half-digital companies in a few years. Focus on: could.
As an ETF saver, do I need to do anything to change?
No, investors can sit back and relax. The providers themselves ensure that the ETF always follows the index. In cooperation with special securities dealers, providers do not buy the ten new shares at once on Monday morning. Instead, they usually get the titles promoted in the previous days and can, so to speak, officially reserve them by the deadline.
Which Dax ETF is the best?
This cannot be said in general terms. While some providers are smart tax savers or others generate a little extra return with loan transactions, the return for all Dax ETFs is similar. Over the past five years, all Dax products have achieved a net profit of between 47.5 and 48.3 percent more, which is not a big difference. So at first glance, investors could just take any Dax ETF – also because all the providers are in fact buying the stocks in the index individually.
If you still want to know exactly, you can sort it out: not all banks offer all ETFs, and investors cannot always put small amounts into the index little by little using a plan. savings. It is best for investors to check their own broker’s comparison platforms first to see which ETFs are on offer.
There is only one point for interested parties to think about: some ETFs lend part of their securities to other participants in the capital market so that they can bet on the fall in prices. This earns the ETF a small loan profit, but it seems strange to some investors. For example, iShares Dax ETF (Isin: DE000 A2Q P331), Deka Dax ETF (Isin: DE000 ETFL 011) or Lyxor Provider (Isin: LU037 843 8732) currently does not lend securities. Investors should, however, regularly check to see if providers are entering the lending industry at some point – this is usually not excluded.
Are the other German indices better than the Dax?
Although the Dax is the index of local prestige, there has been competition for a long time. Index operator FTSE is deliberately challenging little Dax with a huge German index. The so-called FTSE Germany All Share comprises around 160 shares from Wanterkant to Alpenrand: with A for Allianz to Z for Zooplus, large ships are represented there as well as small stock market shares. Investors are wrong, however, if they believe they have a much larger base with this index.
SZ’s calculations show that the 40 largest stocks in this index account for just over 80 percent of the total weight and crush the price basket. The remaining 120 companies have the appearance of diversity, but do not even represent 20% in total.
While the automotive, chemical and industrial stocks of the new Dax are expected to be around 44% according to the simulations, they are only slightly less in the FTSE Germany at 38%. Conversely, IT stocks are slightly more represented in the FTSE index with 15%. If you want to bet on this larger German index, you can take a look at an ETF called Vanguard Germany All Cap (Isin: IE00BG143G97).
Some say: The German M-Dax stock index will be “castrated” by the reform. Is it correct?
In a way, yes. With the reform, the M-Dax of average stock market values will lose its ten largest values, which will eventually rise towards the Dax. At the same time, the stock market reduces the index from 60 to 50 stocks. It’s painful for the M-Dax, the barometer loses almost half of its market value – and in importance.
But that doesn’t have to be bad: Many banks have long held the view that M-Dax’s biggest stocks are not mid-sized stocks, but in fact heavyweights. The remaining shares of M-Dax are now smaller, the index could once again live up to its name. “This is exactly where the recipe for the long-term success of the index lies, as these second-tier stocks promise high growth potential,” says index expert Sven Streibel of the DZ-Bank cooperative.
How patriotic should I be with the investment?
When it comes to their stocks, investors show a lot of love for Germany. Almost 60% of the country’s citizens’ stock holdings are in German stocks, according to figures from the Bundesbank. It’s understandable: the people of Stuttgart think they are particularly familiar with Daimler, while Berliners may have a stronger connection to Zalando. “Buy what you know” is an often quoted motto on the stock exchange.
However, there is a double fallacy behind this: Just because companies are featured in newspapers often does not mean that they are better than companies in other countries. And many Wolfsburgers would not have been able to see a diesel scandal coming at Volkswagen. Moreover, even with the new Dax, investors are only leaning their money on 40 stocks, which is not enough for a balanced spread. If the German economy does badly, not only can prices go down, but in an emergency your own job can also be lost. The German benchmark is therefore only suitable as a mixture of five to ten percent of its own equity portfolio.
Instead, investment advisers recommend global stock indices such as the MSCI World Index of Industrialized Countries or the MSCI All Country World Index, which also includes emerging markets. The best: Even in these indexes, climbers from DAX from A for Airbus to Z for Zalando are already included.