Last updated on 19 de March de 2023
It is very helpful to be familiar with a country’s stock market indices if we want to invest there. In this post we will analyze the 5 most important German stock market indices, including the world-famous DAX.
Germany is Europe’s largest economy and, ranking only behind the United States, China and Japan on world scale, according to the IMF. It is also a very powerful exporter, with a dominant industrial sector and a very stable economy at the heart of Europe. Hence there are many reasons why we may want to invest in Germany.
To that end, learning about Germany’s most important stock market indices can be extremely helpful. Regardless of whether you want to invest in one of its index-tracking funds or ETFs or pick your own companies, this knowledge will give you a very good understanding of the potential risk and rewards of investing in Germany.
When it comes to passive investing, which is done by tracking a stock market index, it is key to understand the differences between all the stock market indices available. As we will see, indices designed to represent the same market can deviate significantly from one another.
Most indices we will analyze below are owned by Deutsche Börse AG, the corporation in charge of most stock exchanges in Germany, including Frankfurt’s XETRA, and a publicly listed company itself.
The DAX index, also known as DAX 40, is the most famous stock market index in Germany. DAX is the abbreviation of Deutscher Aktienindex (German stock index). It was introduced in 1988 and is composed of 40 of Germany’s largest corporations.
The DAX is heavily dominated by industrial and chemical companies, including Siemens, BASF, Daimler, BMW and Volkswagen. Though one of its largest weightings can be found in the technology behemoth SAP.
The index’s companies are weighted according to stock market capitalization adjusted for free float. This means that the bigger a corporation, the larger its weight in the index. However, those shares in hands of insider investors, such as founders, very large shareholders and governments, are excluded for weight calculation purposes.
Something worth mentioning about the DAX is that it is a total return index. This means that, whenever we see a historical chart, that includes the dividends paid by the index’s members throughout time. This is in contrast with most other stock market indices, which only track the stocks’ prices and do not include past dividends paid.
For that very reason, if we want to compare the DAX with another stock market index, we should do so by using comparable versions of both indices. For example, we could either compare the DAX against the S&P 500 Total Return Index, or the DAX Price Index with the standard S&P 500.
The DAX is Germany’s most heavily tracked stock market index by Exchange-Traded Funds. As a consequence, it will not be difficult to find a vehicle that allows us to invest in it.
You can visit its official website to analyze its historical performance, including its price index version which does not include past dividends paid.
The MDAX, or Mid-Cap DAX, is the second most important stock market index in Germany. It is composed of the next 50 largest companies after the ones included in the DAX. Hence it is an index which made up of med-cap stocks. Up until late 2020, it was composed by 60 companies.
Relatively large companies can be found here, including some that were once in the DAX but were relegated due to poor price performance leading to a smaller market cap. By the same token, it also includes those companies that are eligible to join the DAX at some point in the future.
Introduced in 1996, the MDAX also weights its stocks according to their market capitalization adjusted for free float. And just like its big brother the DAX, it is also a total return index, where historical dividend payments are taken into account.
You will find more information about it, including its historical performance on its official website.
The SDAX, or Small-Cap DAX, is the third tier of German stock market indices calculated by Deutsche Börse AG. It is composed of the 70 stocks by float-adjusted market cap that come after the 40 included in the DAX and the 50 included in the MDAX.
Hence, if we were to rank all of those companies, the ones included in the SDAX would be between places 91 and 160.
Due to their smaller size, the SDAX is much more closely correlated with the performance of the German economy. This is because those companies are less internationalized and export-oriented, and because of that less exposed to global macroeconomic events.
Many of the SDAX companies are indeed family corporations that have been successful, grown significantly and floated a portion of its shares to the stock market. These companies are known as the German Mittelstand.
You will find more information about the SDAX on its official website. Remember that it is also a total return index.
The suite of indices offered by Deutsche Börse also contains one that is heavily weighted toward technological companies. The TecDax, or Technologie DAX (technology DAX), includes the 30 largest listed companies in the technology, biotechnology, communications, electronics and engineering sectors in Germany.
In a way we could say that the TecDAX is the German NASDAQ.
Most of the constituents of the TecDAX are themselves also part of the DAX, MDAX or SDAX indices. Some of the larger ones are Infineon, Deutsche Telekom, SAP and Sartorius.
The TecDAX was introduced in 2003 with the goal of replacing the previous NEMAX 50 (Neuer Markt 50, Neu Market 50 index) after its heavy losses after the dot com bubble in 2001.
You will find more information about it on its official website.
Lastly, for those interested in investing passively in German large cap stocks, the MSCI Germany offers an alternative to the DAX. The MSCI Germany is composed of all German stocks that are also included in the MSCI World index.
The exact number of index members varies over time, based on how many German companies meet the eligibility requirements of the MSCI World index. However, it tends to have between 30 and 40 companies. And they are also weighted by market capitalization adjusted for free float.
For all these reasons, the correlation between the MSCI Germany and the DAX is extremely high. And because many ETF and index fund providers track the indices calculated by MSCI, it is a good investment alternative for passive investors, or investors who want to make tactical bets on the German stock market.
I hope you found this post about the most important German stock market indices useful. Understanding how stock market indices work is an important step before we can comfortably invest in a country.
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And if you would like to learn more about European stock market indices, take a look at the following post:
European Stock Market Indices