The DAX40: Germany's Leading Index and the Best Ways to Invest

The Significance of the DAX40 for Investors and the Economy

The DAX40 is much more than just a number on the stock exchange ticker – it is the thermometer of the German economy. As the leading stock index, it represents the development of the 40 largest publicly traded companies in the country and serves as a central reference point for investors, economic experts, and policymakers alike.

The DAX40 Index comprises the most significant German corporations, including well-known names like SAP, Siemens, Deutsche Telekom, as well as automotive giants such as Volkswagen, BMW, and Mercedes-Benz. The weighting of companies is based on their market capitalization, allowing for a realistic reflection of economic power relations. Since its inception in July 1988 with a starting value of 1,000 points, the DAX has developed into a store of value with impressive long-term stability.

Historical Development: From 1,000 to over 18,500 points

The history of the DAX40 begins in 1988 when the German Stock Exchange, the Frankfurt Stock Exchange, and the Börsen-Zeitung jointly created this index. Originally, it included only 30 companies and was expanded to 40 titles in September 2021 to better reflect the German economy.

The record is impressive: from 1,000 points in 1988 to nearly 18,500 points in July 2024 – a value increase of 18.5 times. This corresponds to an average annual growth rate of about 8.44%. A hypothetical investment of €10,000 in 1988 would have grown to over €185,000 today.

However, this upward trend was not linear. The market experienced significant setbacks: the Dot-Com Crash in 2000, the financial crisis in 2008, and the pandemic shock in 2020. Nevertheless, this long-term performance underpins the reputation of the DAX40 as a solid investment instrument for patient investors.

Comparison with the S&P 500: The return reality

An important perspective for international investors is the comparison between the DAX40 and the American S&P 500. While the DAX increased by about 48% over the past 5 years, the S&P 500 showed a much stronger performance with around 85% growth.

Notably, both indices exhibit similar volatility levels – the DAX40 at 20.83% and the S&P 500 at 21.17%. That means: with comparable risk, the American index offers significantly higher returns. This is a key reason why many internationally oriented investors also combine the DAX ETF with broader diversification.

The right investment strategy: From ETFs to derivatives

DAX 40 ETF: The classic route for long-term investors

For investors with a longer-term horizon, DAX ETFs are the most elegant solution. ETFs are exchange-traded funds that mirror the performance of the DAX40 one-to-one.

The advantages are clear:

• Diversification without buying individual stocks: Instead of managing 40 individual positions, you gain access to all components of the index with a DAX ETF
• Broad sector coverage: Automotive, chemicals, pharmaceuticals, technology, and financial services are represented
• Low fees: The iShares Core DAX UCITS ETF, for example, charges only 0.16% management fees per year – a fraction of the 2% p.a. charged by actively managed funds

The DAX ETF is thus the method of choice for passive wealth building.

Short-term speculation: Futures and CFDs

Those looking to capitalize on short-term price movements of the DAX40 have two options:

DAX futures are traded on Eurex in Frankfurt and are primarily aimed at institutional investors or private traders with substantial capital. The contract size is standardized (DAX points × 25 euros), and trading hours run from 1:00 to 1:00 CET.

DAX CFDs (Contracts for Difference) are also interesting for private investors with smaller accounts. They enable:

• Flexible position sizes (including fractions)
• Leverage for amplified gains (but also losses)
• No fixed expiration dates
• Trading on falling and rising prices

The downside: CFDs involve daily financing costs and carry counterparty risk with the broker.

The constituents of the DAX40: Who’s in it?

The DAX40 unites a broad spectrum of German economic strength under one umbrella:

Among the heavyweights are companies like Allianz, Deutsche Telekom, Deutsche Bank, and BASF. The automotive sector is prominently represented by Volkswagen, BMW, Mercedes-Benz, and Porsche. SAP as a software giant, Siemens as an industrial conglomerate, and Fresenius as a healthcare provider round out the portfolio. This mix makes the index resilient against sector-specific shocks.

Trading hours: When can you trade DAX positions?

Trading hours vary depending on the investment form:

For DAX ETFs, most trading venues offer liquidity between 8:00 and 22:00. The Berlin, Düsseldorf, and Frankfurt stock exchanges, as well as Gettex, Hamburg, Munich, Stuttgart, and Tradegate, enable regular transactions.

For DAX futures on Eurex, the times are:

• Pre-market: 1:00 - 8:00 CET
• Main trading: 8:00 - 22:00 CET
• After-hours: 22:00 - 1:00 CET

For DAX CFDs, the times depend on the respective broker but typically follow regular stock exchange hours.

Risk profile and attractiveness of the DAX40

Arguments for investing in the DAX40

The DAX40 Index stands out for several reasons:

• Dosed risk: Diversification across 40 companies from various sectors reduces individual risk. With an implied volatility of 20.83% over the last 5 years, the DAX40 is not riskier than the S&P 500.
• High liquidity: The large trading volume allows for quick positions at fair prices.
• Proven performance: An average annual return of 8.44% over 36 years speaks for itself.
• More flexible access: With ETFs, futures, and CFDs, there are multiple ways depending on capital and time horizon.

What speaks against the DAX

The main criticism remains its relative underperformance compared to the S&P 500. With 48% return in 5 years versus 85% for the American index, investors should consider whether to at least allocate part of their portfolio to US stocks. Additionally, the concentration on the German and European economy has a stronger impact during global crises.

Conclusion: The DAX40 as a core position

The DAX40 is a solid foundation for German-speaking and European investors. Those looking to invest long-term in the German economy will be well advised with a DAX ETF – such as the iShares Core DAX UCITS ETF with a 0.16% expense ratio.

For speculative traders, DAX CFDs and DAX futures offer alternative ways to profit from price movements. The choice depends on your time horizon, available capital, and risk tolerance.

Regardless of the method: the DAX40 remains a flagship of German financial strength and an instrument that deserves a place in a diversified portfolio.