If the stock exchange expands the German leading index Dax to 40 stocks on Monday, it will even have to reprogram the well-known price board in the trading hall. Where up to now there were 15 values on both sides of the most famous price curve in the country, the stock exchange people now have to accommodate 20 values each. The reform also affects savers in this country, because many people invest a small amount every month in exchange-traded index followers (ETF) that follow the German leading index one-to-one. Do you now also have to screw in your own depot? The SZ answers the most important investment questions about the index reform.
Is the Dax now making a leap 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 jump,” says asset manager Markus C. Zschaber from VMZ Vermögensverwaltung. Instead, the stock market simply pushes the weight of the 30 long-established stocks in the leading index down by around 15 percent in order to create enough space for the new ten values. In the future, the aircraft manufacturers from Airbus, the corona testers from Qiagen and the cook box dispatchers from Hellofresh will also be part of the new “Dax 40” – a mixed bag.
Will the Dax get more boost with the new members?
Superficially yes. Many investors have been electrified for weeks that with Hellofresh and the online fashion retailer Zalando, new Internet stocks could bring more dynamism to the index. Siemens Healthineers, the medical test experts from Qiagen and the laboratory supplier Sartorius also include three pharmaceutical stocks in the index. “That is why the Dax receives a fresh blood supply,” says capital market strategist Robert Halver from Baader-Bank. Part of the whole picture, however, is that the new stocks in the index will hardly have any weight at the start. So they are literally hopeful. Only if they got bigger and bigger in the future would they really drive the entire index.
How much does the changed Dax still reflect the “old economy”, ie the traditional economy?
Many investors are already looking forward to the Dax in a new guise: fewer cars, more pharmaceuticals. Such headlines, however, are more than shortened, as simulations show. If investors add up the supposed old economy sectors of chemicals, automobiles, industry, transport, utilities and construction, the weight of these cyclically sensitive industrial sectors in the index is unlikely to change much. At first glance this may seem confusing, after all, new Internet titles are added to the index. Zalando and Hellofresh together are only likely to make up around two percent of the new Dax 40. While IT stocks are now clearly overrepresented in many US indices, they will probably remain underweight in Germany even after the reform.
Investors shouldn’t belittle the Dax too quickly. “To dismiss the Dax as an old economy index would be too easy,” says Silke Schlünsen from the investment bank Stifel. After all, many supposedly “old” industrial companies are just starting their digital or ecological transformation and could be half digital corporations themselves in a few years’ time. Emphasis on: could.
As an ETF saver, do I have to do anything to switch?
No, investors can sit back and relax. The providers themselves ensure that the ETF always tracks the index. In cooperation with special securities dealers, the providers do not buy the ten new shares all at once on Monday morning. Instead, they usually get the promoted titles in the previous days and can, as it were, officially book them in on the cut-off date.
Which Dax ETF is the best?
That cannot be said in general terms. Although some providers cleverly save taxes or others generate a small additional return with loan transactions, the return of all Dax ETFs is similar. Over the past five years, all Dax products have made a bottom line between 47.5 and 48.3 percent plus, not a big difference. So on the face of it, investors could just take any Dax ETF – also because all providers actually buy the stocks in the index one-to-one.
If you still want to know exactly, you can sort it out: Not every bank offers every ETF, and investors cannot always put small sums into the index little by little using a savings plan. It is best for investors to look at comparison platforms at their own broker beforehand to see which ETFs are on offer at all.
Interested parties should only think about one point: Some ETFs lend some of their securities to other players on the capital market so that they can bet on falling prices. That brings the ETF a small loan profit, but it seems strange to some investors. For example, the Dax ETF from iShares (Isin: DE000 A2Q P331), the Dax ETF from Deka (Isin: DE000 ETFL 011) or the provider Lyxor (Isin: LU037 843 8732) do not currently lend securities. Investors should, however, regularly check whether the providers do not enter the lending business at some point – this is usually not excluded.
Are other Germany indices better than the Dax?
The Dax is the local prestige index, but there has long been competition. The index operator FTSE deliberately challenges the small Dax with a huge Germany index. The so-called FTSE Germany All Share includes almost 160 stocks from Wanterkant to Alpenrand: With A for Allianz to Z for Zooplus, big ships are represented there as well as small stock market stocks. Investors are wrong, however, if they feel they have a much broader base with this index.
SZ calculations show that the 40 largest stocks in this index account for a little more than 80 percent of the total weight and crush the price basket. The remaining 120 or so companies have the appearance of diversity, but do not even make up 20 percent overall.
While auto, chemical and industrial stocks in the new Dax should represent around 44 percent according to simulations, they make up only marginally less in the FTSE Germany at 38 percent. Conversely, IT stocks are slightly more represented in the FTSE index with 15 percent. If you want to bet on this broader Germany index, you can take a look at an ETF called Vanguard Germany All Cap (Isin: IE00BG143G97).
Some say: The German M-Dax share index will be “castrated” by the reform. Is that correct?
In a way, yes. With the reform, the M-Dax of medium-sized stock market stocks will lose its ten largest stocks, which will eventually rise to the Dax. At the same time, the stock exchange trims the index from 60 to 50 stocks. This is painful for the M-Dax, the barometer is losing almost half of its market value – and in importance.
But that doesn’t have to be bad: Many banks have long been of the opinion that the largest stocks in the M-Dax weren’t medium-sized stocks, but actually heavyweights. The remaining shares in the M-Dax are now smaller, the index could do justice to its name again. “This is exactly where the long-term recipe for success of the index lies, because these second-tier stocks promise high growth potential,” says index expert Sven Streibel from the cooperative DZ-Bank.
How patriotic should I be with investing?
When it comes to their shares, investors show a good deal of love for Germany. Almost 60 percent of people’s equity assets in the country are in German stocks, figures from the Bundesbank show. That is understandable: people from Stuttgart think they are particularly familiar with Daimler, while Berliners may have a stronger connection with Zalando. “Buy what you know” is a much-quoted motto on the stock market.
However, there is a double fallacy behind this: Just because companies are often featured in the newspaper doesn’t mean they are better than companies from other countries. And many residents in Wolfsburg could not have seen a diesel scandal at Volkswagen coming. In addition, even with the new Dax, investors hang their money on only 40 stocks, which is not enough for a balanced spread. If the German economy is doing badly, not only can prices fall, but in an emergency, your own job can also be lost. The German benchmark index is therefore only suitable as an admixture of five to ten percent of one’s own equity portfolio.
Instead, investment advisors recommend global equity 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 indices, the DAX climbers from A for Airbus to Z for Zalando are already included.