Markets have been buoyant this year as investors have begun to envisage a world of falling inflation, interest rates cuts and stronger economic growth.
While the Nasdaq Composite and the French CAC 40 had been the leading indices this year until mid-April, the DAX-40 overhauled the French index in recent weeks.
Made up of the 40 largest businesses by market value listed on the Frankfurt stock exchange, it has returned 14.3%, as the below table shows.
The German market has topped the likes of the Euronext 100 (an index of broader European equities), Japan’s Nikkei 225 and the US’ S&P 500.
Russ Mould, investment director at AJ Bell, said: “One major reason for this is the drop in European gas prices and lower energy costs more generally. Germany was hugely reliant on Russian hydrocarbons so its economy was right in the firing line when sanctions were imposed and prices soared.
“Clever sourcing of alternative supplies of energy, notably liquified natural gas (LNG), plus a policy U-turn on coal usage and well-observed campaigns to curb consumption, helped the economy through, as did a mild winter. In sum, the worst case did not happen and stocks that suffered a beating in mid-2022 have rallied.”
Hopes for a mild global downturn and China’s reopening have also boosted sentiment and helped Germany’s export-driven economy.
Mould added: “A further positive factor is the return to favour of technology stocks after their year in the doldrums in 2022.
“Software giant SAP is the biggest stock by market cap in the index and it is up by more than a quarter while silicon chip maker Infineon is another notable gainer, buoyed by hopes for a second-half recovery in demand once an industry-wide inventory bulge is digested.”
Performance of major indices worldwide
Source: Refinitiv
Trustnet has searched for ways to capture the performance of the German market. To do so, we have looked for funds recognised by the Investment Association (IA) with an allocation to Germany of at least 40% and only investing in equities.
Four of these benchmark themselves against the DAX index. They are Allianz German Equity, Lyxor - DAX (DR) UCITS ETF, Xtrackers - DAX ESG Screened UCITS ETF and Amundi - ETF DAX UCITS ETF.
Allianz German Equity is an active fund that was launched in 2012. It includes environmental and social factors in its investment decisions.
Performance of fund over 10 years vs benchmark
Source: FE Analytics
Run by Christoph Berger, the portfolio is overweight technology and miners relative to the benchmark, while it is underweight consumer discretionary and industrials.
Infineon Technologies (10%), SAP (9.1%) and Siemens (8.6%) are the largest holdings in the fund, while the top 10 positions make up 47.4% of the portfolio.
Lyxor - DAX (DR) UCITS ETF, Xtrackers - DAX ESG Screened UCITS ETF and Amundi - ETF DAX UCITS ETF are passive funds. Over 10 years, they all have a correlation of 0.95.
The German stock market is, however, not limited to the DAX. The MDAX index includes the next 50 largest German firms by market capitalisation.
There are two passive funds tracking the performance of the MDAX index: Invesco - MDAX UCITS ETF and Xtrackers - MDAX ESG Screened UCITS ETF.
Invesco – MDAX UCITS ETF has Lufthansa, Fresenius Medical Care and Delivery Hero as top three holdings, while Xtrackers – MDAX ESG Screened UCITS ETF’s three largest positions are Lufthansa, Fresenius Medical Care and GEA Group.
Another German benchmark is the HDAX index, which combines the DAX, MDAX and TecDAX (the 30 largest German firms in the technology sector).
HDAX is the benchmark Barings German Growth Trust aims to outperform.
Performance of fund over 10 years vs sector and benchmark
Source: FE Analytics
Over 10 years, the fund has met its objective by a small margin, delivering total returns of 119.7% against 118.3% for the HDAX index.
According to Barings UK Unit Trust’s interim report & unaudited financial statements for the half year ended 28 February 2023, the fund’s three largest holdings are SAP, Allianz and Deutsche Telekom.
Finally, Vanguard also offers an ETF specialised in German equities, which unlike the previous funds, benchmark itself against a FTSE index: the FTSE Germany All Cap Index .
Since launch in 2018, the Vanguard Germany All Cap UCITS ETF has had a perfect correlation (1.0) with its benchmark. Its three largest holdings are also SAP, Siemens and Allianz.