Germany's benchmark, and the one major index that is not what it appears to be: the quoted level includes reinvested dividends, which makes every casual comparison to its European peers wrong.
The DAX launched on 1 July 1988, tracking the largest and most liquid companies on the Frankfurt Stock Exchange. Prices come from Xetra, Deutsche Börse's electronic trading platform. It is operated today by STOXX, part of the Deutsche Börse group.
Two things distinguish it from its peers. One is well known and structural. The other is a methodological detail that quietly invalidates a large amount of published market commentary.
Almost every quoted index level in the world is a price return — it tracks share prices and ignores dividends. The headline DAX is a total return index: dividends are treated as reinvested into the index.
The practical consequence: a chart showing the DAX outperforming the CAC 40 or FTSE 100 over twenty years is not showing what it appears to show. It is comparing a dividends-included series against dividends-excluded series. Correct the mismatch and much of the apparent outperformance disappears.
This is not a trick — Deutsche Börse is entirely open about the methodology, and there is a reasonable argument that total return is the more meaningful measure. The problem is that it is the exception, and comparisons are routinely made without adjusting.
For thirty-three years the DAX held thirty companies. In September 2021 it expanded to forty, and the reason was a fraud.
Wirecard, a payments company, had joined the DAX in 2018 and collapsed in 2020 after acknowledging that a large balance-sheet cash position did not exist. A member of Germany's premier index turned out to be a substantial accounting fraud, and the review that followed changed the index rules rather than only the constituent list.
The reforms tightened membership requirements: constituents must demonstrate profitability before admission, publish audited annual reports and quarterly statements on time, and meet governance standards including audit committee requirements. Failure to file on schedule can now trigger removal. The index was simultaneously broadened to forty companies, with the mid-cap MDAX reduced from sixty constituents to fifty to accommodate the shift.
The DAX is concentrated in the industries Germany is known for — industrial engineering, chemicals, automotive, insurance and software. Its constituents represent well over 80% of the aggregate market capitalization of listed German companies, which makes it a reasonable proxy for German listed equity even at forty names.
Like the FTSE 100, however, its largest constituents are global businesses. German industrial and automotive companies sell worldwide, so the index responds to global manufacturing demand and export conditions more than to German domestic activity.
A methodological choice made at launch. Deutsche Börse also publishes a price-return version, but the total-return series is the one quoted publicly.
Not on quoted levels. Use the DAX Kursindex against the CAC 40, or a total-return version of the CAC 40 against the standard DAX — but do not mix the two conventions.
Expansion to 40 constituents, profitability requirements for admission, mandatory timely audited reporting, and governance standards including audit committee requirements.