MDAX®, the index for German mid-sized stocks, turns 25 today, in a year that sees important changes to its methodology.
The MDAX was introduced on Jan. 19, 1996 and tracks the companies that fall short of entering the country’s benchmark DAX® due to market capitalization or trading volume. In November last year, Qontigo announced changes to the DAX index family’s methodology: in September 2021 the number of MDAX constituents will fall to 50 from 60, and the selection criterion of trading volume will be dropped.
Throughout its history, the MDAX has preserved the rules-based ethos, precision and reliability of all DAX Selection indices, and has reflected the performance of some well-known German brands with operations around the world.
The MDAX has also benefitted from the proven power of smaller-capitalization companies relative to the 30-stock benchmark DAX.1 Since inception, the former has returned 1083%, compared with a 485% gain for the latter, with most of the outperformance taking place in the past decade (Exhibit 1).2
Exhibit 1 – MDAX absolute and relative performance
The MDAX debuted at a level of 2,629 points and closed at 31,102 on Jan. 11 this year, on a total-return basis, its most-widely publicized version. Despite some turbulent market times in the last 25 years, including the emerging markets currency crisis (1998), dot-com bubble burst (2000), the global financial crisis (2007-2008) and most recently the COVID-19 pandemic, the index has amassed a compounded annual growth rate of around 10%.
The index posted its biggest daily loss (-10.9%) on Mar. 12, 2020. Its steepest daily gain (12%) came on Oct. 13, 2008. It has most recently traded at an all-time high.
All through this time, the index has received investor interest. About EUR 3.2 billion are invested in exchange-traded funds (ETFs) tracking the MDAX, according to Qontigo data.3 Open interest in MDAX futures and options on Eurex amounted to just over EUR 950 million at the end of last year.
2018 changes and new rules ahead
The MDAX is part of the DAX Selection Indices, which also include the DAX, SDAX® and TecDAX®. In September 2018, the MDAX saw an adjustment to its methodology, whereas a sector segregation that restricted technology shares from entering the MDAX and SDAX was dropped. As a result, the MDAX was expanded to 60 from 50 constituents.
Last November, Qontigo announced an even bigger methodology reform to the DAX Selection Indices, with new rules that bolster the quality of member companies and bring selection criteria in line with international standards.
Firstly, DAX Selection Indices companies will be required to timely publish their financial statements and have an internal independent audit committee in place.
The selection criterion of trading turnover will be replaced by a minimum liquidity requirement in September this year, with market capitalization remaining the key metric as is customary internationally. This change aims to simplify the index composition process and harmonize the index methodology with mainstream traditional benchmarks.
A requirement for all DAX Selection Indices’ constituents to be listed on the Frankfurt Stock Exchange’s Prime Standard, a premium segment with higher transparency duties than the General Standard segment, is being removed in favor of a listing on the Regulated Market of the Exchange. However, the key requirement of the Prime Standard to publish quarterly statements, half-yearly financial reports and audited annual financial reports is now retained as part of the indices’ own methodology.
As of December 2020, all future DAX candidates must have a positive EBITDA in their two most recent fiscal years. Failure to fulfill this criterion is another reason for a company to remain in the MDAX rather than entering the DAX.4
Throughout the various changes, Qontigo has upheld the principles of maximum transparency, neutrality and independence that characterize all DAX and STOXX indices.
Looking to the next 25 years
Perhaps less well-known than its blue-chip counterpart DAX, the MDAX is nonetheless a representation of successful business and growth stories that allows investors to delve deeper into the German corporate network.
The index serves as benchmark or underlying for ETFs, mutual funds, structured products and derivatives. Join us in celebrating the index’s first 25 years and its role as a benchmark for one of Europe’s most exciting business segments.
1 The average market capitalization of MDAX components is EUR 4.9 billion, compared with EUR 34.8 billion for the DAX.
2 Total return in euros.
3 Data as of December 2020.
4 For a closer look at the recent methodology changes of the DAX Selection Indices, please visit the latest DAX rulebook. Find about the results to the corresponding market consultation here.
5 STOXX Ltd., Qontigo’s global index provider, is the administrator of the DAX indices since August 2019.