(Bloomberg) — Germany’s benchmark stock index is about to get a lot bigger and more focused on growth.
The DAX Index is expanding to 40 stocks from 30, and JPMorgan Chase & Co. predicts the additions will include faster-growing, highly valued companies such as online retailer Zalando SE and food delivery stock Hello Fresh SE as well as industrial heavyweights Airbus SE and Siemens Healthineers AG.
The changes, to be announced late Friday by index compiler Qontigo, will add about 350 billion euros ($416 billion) to the gauge’s market value, according to asset manager DWS Group. They also will dilute the prominence of dividend-paying stocks such as BASF SE.
“The DAX is making a small step from a dividend index toward a growth index,” said Silke Schluensen, head of corporate solutions at investment bank Stifel.
When the changes go into effect on Sept. 20, exchange-traded funds that track DAX indexes will be among those to feel the greatest immediate impact. Bloomberg Intelligence estimates that ETFs with about $19 billion in assets will have to shift their investments.
The overhaul is the final step in a series of changes by Qontigo, a subsidiary of Deutsche Boerse AG, to strengthen the benchmark and make it better reflect corporate Germany. The revision was sparked by the collapse of Wirecard AG a year ago — the first DAX member to file for bankruptcy. DAX companies now are required to publish quarterly statements and audited annual results, with a fast exit for those who fail to do so.
The changes “could help the DAX to gain more attention from international investors,” said DWS portfolio manager Christoph Ohme. The index will also gain variety with the addition of industries such as e-commerce and medical technology, he said.
The German index is often touted as the home of some of Europe’s biggest dividend payers, and shareholder returns are included in the index’s performance. That’s contrary to benchmarks such as the Stoxx Europe 600 Index or the U.S. S&P 500 Index, which reflect only the price change of the underlying stocks.
The DAX has underperformed the European and U.S. indexes over the past year when reinvested dividends are included for those benchmarks as well. Over longer periods, Germany has performed in line with the Stoxx 600 while trailing the S&P 500.
The German benchmark was little changed Friday, leaving it up 15% this year.
What the DAX gains in the overhaul, the smaller MDAX Index will lose. The mid-cap gauge will be giving up constituents that make up about 50% of its market value “and will have to prove itself to investors again,” said Stifel’s Schluensen.
There are unlikely to be any wild moves tied to the index overhaul, given that “the market is already quite certain which 10 new DAX members will be announced,” said Arne Scheehl, head of ETF product development and engineering at Lyxor Deutschland.
(Updates to add DAX’s move in 10th paragraph. A previous version of this story corrected the spelling of a name in the last paragraph.)
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