DAX 40: what it is, composition and how to invest

DAX is the main German stock index

The DAX (Deutscher Aktienindex) shows how the German stock market is performing overall. It is a basket of the 40 largest public companies countries, selected by free-float market capitalisation. The index started on 1 July 1988 with a base value of 1,000 points as at 31 December 1987: the current value shows how many times the market has grown since the end of 1987.

Until 20 September 2021, the index contained 30 companies. The reform expanded it to 40 and at the same time tightened the selection rules.

Who calculates the index and how do stocks get into it

The index calculates Deutsche Börse AG. The composition is not fixed: the list is completely reviewed twice a year, in March and September, and the companies' weightings are adjusted quarterly.

Following the 2021 reform, a candidate must meet several requirements at once:

fair market value free-float shares — this is the main criterion for both selection and weight in the index;
minimum exchange turnover: previously turnover was the second selection criterion, now it is simply an admission threshold;
listing in the Prime Standard segment of the Frankfurt Stock Exchange;
auditor-verified annual financial statements and quarterly reports on time;
positive EBITDA for two consecutive years prior to inclusion — this requirement arose following the Wirecard scandal.

If a company misses its reporting deadlines, it is removed from the index after a 30-day warning.

How to invest in the DAX

You cannot buy the index itself—it is a calculated value. People invest through DAX ETFOne such fund tracks the entire index, so you don't need to buy forty shares individually. This is done regularly and in small amounts through ETF savings plan.

DAX — Performance Index, and that matters

The main feature of DAX, which is almost never talked about, is that it is calculated as total return index. The dividends of all constituent companies are notionally reinvested back into the index. Most international indices are structured differently: the S&P 500, MSCI World and Nikkei are price indices, meaning dividends are not taken into account in them.

The difference is huge. At the end of 2023, the Performance-DAX was worth around 16,200 points, while its price version, the DAX-Kursindex, was around 6,400. Since its launch, the performance version has yielded approximately 8.3 % per annum, the price is around 5.16 % per annum. More than half of the entire index growth was driven precisely by reinvested dividends.

Practical conclusion: it is incorrect to compare the DAX chart directly with the S&P 500 chart — in such a comparison, the DAX looks better than it actually is. You need to compare either both versions as total return indices, or both as price indices.

DAX index family

Index	Companies	What does it cover
DAX	40	Germany's largest public companies
MDAX	50	Mid-cap companies following the DAX
SDAX	70	Small cap companies of the next tier
TecDAX	30	Largest technology companies
HDAX	—	Combines the DAX, MDAX and TecDAX. It replaced the previous DAX 100 index
DivDAX	—	DAX companies with the highest dividend yield

DAX, MDAX and SDAX combined represent the country's 160 largest public companies.

The weak point of DAX is concentration

Forty companies is not many. The five largest constituents account for more than 40 % of the index’s total weighting, and the sectoral composition is skewed towards the automotive, chemicals and manufacturing sectors, as well as one major software developer. The German economy is well represented in the index, whilst the global economy is not represented at all.

Therefore, DAX ETFs are rarely used as the sole instrument. More often, they are added to a global fund tracking MSCI World or FTSE All-World when an investor consciously wants to increase their exposure to the German market.

Where to check the value and what about the taxes

The current value and composition of the index are published by Frankfurt Stock Exchange, the same data can be found in any broker’s app. The taxation of income from a DAX ETF is the same as for any equity fund: Abgeltungsteuer 26.375 %, a partial exemption of 30 % and a flat-rate advance payment. A detailed analysis with a calculation example can be found on the page about ETFs and brokers.

The material is for informational purposes only and does not constitute an individual investment recommendation. The value of securities may rise and fall, and past performance is no guarantee of future results.

DAX — German stock index