Sunday April 4th 2021
A rally under the radar
Smaller stocks are going through the roof
By Benjamin Feingold
Heavyweights such as Daimler, Allianz, Apple, Amazon and Siemens are in focus every day. The music plays in the second row: Secondary stocks often depend on the big titles – the difference is very big in the long term.
Shortly before Easter, the time had finally come: Driven by the revitalized automobile stocks and index heavyweights like Siemens, the Dax cracked the 15,000 point barrier. A solid performance – a year ago the market was still below the 10,000 mark.
But the second-tier stocks went even better: The MDax climbed from 20,000 to over 30,000 meters. And the mid caps also shine in the long term: the arithmetical index base of the Dax and MDax was set for the end of December 1987 at a point value of 1000. In other words, the second-tier barometer has since brought in more than double the return than the German benchmark index.
Investors should not underestimate the effect: whoever invested 10,000 euros in the Dax ten years ago, according to calculations by Index Radar, achieved a return of almost eight percent per year and is happy about a portfolio value of 21,200 euros. With the MDax, twelve percent per year were possible, the investment would have risen to 30,800 euros. The SDax has delivered similar results in recent years.
There are numerous reasons responsible for the strong outperformance. Small and mid caps impress with their high growth rates and focused business models – and they are often world market leaders. In addition, families still hold the reins at many companies, which has a positive effect on flexibility, especially in times of crisis. These include course rockets such as Bechtle, Nemetschek and Sartorius.
Strong fluctuations
Overall, the MDax and SDax benefit particularly from their broad positioning across various promising sectors, which means that the index often survives more turbulent economic phases than the Dax. Many industries there have recently had to struggle with particular problems. The crisis at the banks, the exhaust gas scandal at VW and thus in the automotive industry as well as the challenging environment for utilities had a negative impact on the index development. In addition, the classic branches of chemicals, automobiles and industry are strongly represented in the Dax.
There is also another effect that is mostly underestimated. Frequent changes in the review of the index composition ensure that rapidly emerging industries are often included in the MDax and SDax. In the Dax, on the other hand, mostly values move that have already had a longer growth phase and then have a sporty rating. However, investors should make sure that the fluctuation intensity in the small caps is usually greater because fewer institutional investors are involved there than with the large DAX stocks. So despite the prospects, investors need good nerves to invest in the MDax and SDax.
Investors can participate cheaply in the MDax with ETFs. An example: The paper with WKN ETFL44 (Deka) and an annual fee of 0.3 percent. Only Lyxor offers an ETF on the SDax. The paper with the WKN ETF905 has an annual fee of 0.7 percent due to the tight market values in the SDax. The titles in the SDax can usually only be traded with higher fees.
Benjamin Feingold operates the stock exchange portal Feingold Research.
This article does not constitute a recommendation to buy or sell individual stocks, ETFs, certificates or other investment products. No liability is assumed for the correctness of the data.
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