When the flagship German Dax Index was launched in 1988, many commentators liked to compare it to its animal counterpart. Some days, it was said that the Dax had “been friendly today”. If things got worse, then the Dax “just didn’t dare come out of its construction”. Back then, many investors looked at every move in the leading index with love like an animal – but this love for the leading index seems to have cooled more and more. The performance in recent years has been relatively meager, and after the Wirecard affair, the leading index also seemed to have been shaken by the scandal.
If the stock market orchestrates what is probably the biggest reform since the launch of the DAX, then it has to be taken literally: a lot of orchestral thunder, little substance. The fact that companies have recently had to submit their annual and quarterly reports on time and otherwise fly off the index after a short waiting period may seem strict. But as soon as companies submit their figures obediently, they can be put back on the candidate list.
The fact that potential candidates for promotion must have realized operational profits two years before promotion may seem more solid to Dax. The deciding factor is above all the figure for profit before interest, taxes and depreciation – which leaves some things out. On top of that, the new severity abolished it. Because as soon as companies enter the index, they can again register blatant losses.
The reform is not a great success for investors either. The Dax should indeed become wider, more alive and more dynamic, as many bankers have celebrated in recent days. Some equity savers seemed to have better diversification of their wealth if they followed the index one-on-one with special followers. But if you look closely, you will quickly see that apart from a little superficial cosmetics, not much can be expected from this reform.
Of course, with ten new titles, some hot internet companies can make their way into the Prestige Index, including some promising medical companies. But taken together, the ten newcomers to the equity barometer should only represent around 15% of all of Dax. They are only classified under “also ran”. Preliminary calculations from the July stock market even show that the bottom line is that the weight of the reprimanded “old economy” in the index is unlikely to change at all. The reform does not solve the real problems of the leading index.
The stock market could have admitted this with force of argument: even in the FTSE Germany index, which has around 160 stocks, the 40 largest companies represent around 80% of the index, while the 118 smallest stocks represent none. that about 20%. So even if you superficially inflate a very large German index, in the end you just add flyweights. Knowingly ignoring such facts ultimately shows that the Dax reform is a well-calculated public relations campaign. 40 stocks instead of 30 stocks is good for a bold stock – but not for a solid investment.
Incidentally, the stock market completely omitted the biggest label fraud in its index reform: while most of the other major global indexes only show price gains in their curves, the stock market includes dividends reinvested in the Dax. run. While Dax’s normal dividend has more than doubled since the turn of the millennium, the converted Dax without dividends has only increased by around 25%. This is a bitter truth that just wouldn’t do well on the price chart in the trading room.