"Transformations loom for M-Dax imminently."
Marco Herrmann, a seasoned financial professional with over three decades of experience in banking and fund companies, currently serves as the CEO of Fiduka, where he has been responsible for the investment strategy since 2010. In recent discussions, Herrmann highlights the significance of the MDAX, an index of medium-sized German companies, as an attractive investment vehicle for many.
The MDAX has demonstrated a strong performance, with an annual return of 11.1 percent, surpassing the DAX's 8.5 percent. This small-cap or size effect in Germany has been evident in the long run, as the MDAX has outperformed the DAX. The index currently stands at around 34,000 points, more than double the DAX's current value of approximately 15,300 points.
Investors interested in short-term investments may find the DAX ascenders, potential newcomers to the DAX, noteworthy. Historically, stocks of companies included in important benchmark indices like the DAX have been able to achieve an above-average return. Vantage Towers, Befesa, and Jungheinrich could potentially join the MDAX in the regular index review.
However, betting on index risers and fallers is typically not profitable for private investors due to the risks associated with minor market fluctuations. For investors who are invested in the MDAX via ETFs, there is no urgent need for action due to the index change, as the MDAX remains an attractive investment.
When stocks from the MDAX move up to the DAX, it typically changes the character and performance of the MDAX for several reasons. Firstly, the composition of the MDAX shifts, creating vacancies that are filled by smaller or less prominent companies. This can lead to a change in the sectoral composition of the MDAX, potentially altering its performance and volatility.
Secondly, the MDAX may experience some instability or a decrease in overall market capitalization as it loses its top performers. This can affect investor confidence and the index's ability to attract new investments, potentially impacting its performance.
Thirdly, the promotion of stocks to the DAX opens opportunities for smaller companies to enter the MDAX. This can lead to increased activity and potential for growth among new entrants, as they may attract more investor attention and capital once they are part of a major index.
Lastly, the movement of stocks from the MDAX to the DAX can influence investor sentiment. A shift in the perceptions of the MDAX's stability and potential for growth might occur, affecting how investors allocate their resources within the German stock market.
Despite these changes, the MDAX remains a popular investment vehicle among investors due to its outstanding performance. Qontigo, a subsidiary of Deutsche Börse, has compared the past performance of the MDAX with its new composition, but has not shown a better performance due to the focus on smaller companies. The MDAX includes more technology and medtech/biotech stocks compared to the DAX, and smaller companies in the MDAX often have stronger growth dynamics due to more focused business models.
In conclusion, the promotion of stocks from the MDAX to the DAX can lead to changes in the MDAX's character, with potential impacts on its performance, composition, and attractiveness to investors. However, the MDAX's strong performance and focus on smaller, stringently oriented companies make it an attractive investment option for many.
Given Marco Herrmann's emphasis on the MDAX as an investment vehicle, investors looking for personal-finance growth might consider this index, considering its strong performance and outperformance of the DAX. Other potential investors, however, should bear in mind that moving stocks to the DAX could lead to changes in the MDAX's character, which could influence its future performance in other aspects of business, such as its sectoral composition and overall market capitalization.
