When people talk about the DAX, many investors and consumers think of “the” DAX, which the media usually talk about. However, the DAX, or more precisely the DAX 30, only includes the 30 largest companies in Germany. However, since there are many more stock corporations, the DAX was expanded to include the MDAX and the SDAX.
- The SDAX tracks the German stock market indices with the DAX 30, the MDAX and the TecDAX.
- The SDAX lists the companies that follow the MDAX in terms of liquidity and market capitalization.
- The SDAX is not restricted to specific industries.
- Shares from the SDAX stand out for investors in many ways.
What is the SDAX? definition
The abbreviation SDAX is based on the term “small cap” – DAX . Smaller stock companies are considered to be small caps. The SDAX was introduced by Deutsche Börse AG in 1999. It comprises the 70 companies that follow the MDAX-listed companies in terms of liquidity and market capitalization. The decision as to which company is qualified for the SDAX or has lost its qualification is decided by a computer program based on an analysis of the key figures.
Which companies will be included in the SDAX?
The prerequisite for inclusion in the SDAX is that it is one of the 165 companies listed in the Prime Standard. The Prime Standard, in turn, is part of the regulated stock market with the highest demands on the transparency standards of companies.
The companies listed in the SDAX undertake to Deutsche Börse AG to meet the following requirements:
- Minimum quota of the free float 20 percent, for the official market 25 percent.
- There must be at least one “Designated Sponsor”.
- The companies must recognize the principles for the allocation of share issues of the Stock Exchange Expert Commission.
- In addition to the annual balance sheet, the companies must prepare a three-, six- and nine-month report and publish this no later than two months after the end of the reporting period.
- Preparation of the annual report and publication no later than 4 months after the end of the reporting period
- International accounting standards (IAS) or US-GAAP (Generally Accepted Accounting Principles) must be used for international accounting in both German and English.
- An analyst event must take place at least once a year.
- The company calendar must be publicly available and up-to-date.
The free float is the proportion of shares in a company that are not in permanent possession, but can be purchased by all investors on the stock exchange .
The official market or, as it has been called since 2007, the regulated market is a sub-area of stock trading . Stock trading is divided into the Regulated Unofficial Market and the Regulated Market. In the regulated market, companies have to meet additional strict requirements that are not available on the open market. This includes, among other things, the obligation to ad hoc publicity. This states that changes in the company that could affect the stock market price must be made public immediately. A good example of this was the news of the exhaust scandal at VW.
A stock broker who is active in XETRA trading is called a Designated Sponsor. As a market maker, he ensures the necessary liquidity of the shares in continuous trading on behalf of the issuer. A market maker, in turn, is a broker who sets the prices himself.
Distribution in the SDAX
In March, June, September and December, a check is carried out to determine whether a company still meets the size criteria for being listed in the SDAX. In contrast to the TecDax, the technology index, the SDAX does not have any requirements regarding the industry. Companies from the following sectors are represented:
- construction industry
- mechanical engineering
The SDAX has undergone a number of changes since it was founded. It started with a total of 100 companies. In March 2003 there was a reduction to 50 joint stock companies. In September 2018, the increase to 70 values took place again.
Price determination in the SDAX
The SDAX prices are determined within the framework of XETRA trading. On every trading day, the calculation of the SDAX starts at 9 a.m. and ends at 5:30 p.m., the official close of trading in XETRA trading. A second trading round, the L-SDAX, “late SDAX”, begins between 5:45 pm and 8:00 pm. This late index is an indicator of the further performance of the SDAX.
The SDAX is determined in two ways. On the one hand there is the performance index, on the other hand the price index. For investors, the performance index is the more interesting parameter, as the dividends already paid are also included here. The performance index simulates that all income, including dividends, would be reinvested in the stock . The price index represents the price adjusted for the dividend , which in turn means a lower index value than a performance index.
Advantages of investing in companies from the SDAX
The advantage of shares from the SDAX for investors is easily outlined. These are small businesses. These usually have shorter decision-making paths than large corporations. Due to the greater flexibility, they can adapt more quickly to changing market conditions. Often these companies, which belong to the exposed members of the German middle class, specialize in lucrative niche markets and are nicknamed “hidden champions”. SDAX stocks often offer a more lucrative dividend yield than companies from the MDAX or DAX 30. In addition, smaller companies are more eager than large companies to expand in order to secure and expand their market share. Investors benefit from the above-average growth potential compared to a DAX-30 stock.