A Deutsche Bank study suggests that joining Germany’s blue-chip DAX index may deliver limited long-term benefits for stocks, despite near-term liquidity gains. The analysis, covering historical rebalances, shows that companies added to the index underperformed the DAX by a median 2% on rebalance day and by 8% over the following year.
Only 16 of 41 new entrants (39%) outperformed the index in their first year as members, according to the bank’s data. Deutsche Bank analysts noted that stocks typically rally ahead of inclusion, only to lag afterward. "DAX inclusion is not as beneficial for stock price performance as one might expect," said Carolin Raab, lead analyst. "As companies tend to rally ahead of index inclusion, their shares tend to underperform once index inclusion is achieved."
The study also highlights a liquidity trade-off. Trading volumes for companies joining the index rose by a median 15%, while those leaving saw volumes fall by the same margin. However, Deutsche Bank concluded that liquidity improvements do not translate into sustained outperformance.
Performance patterns differ sharply for excluded companies. Stocks dropped from the DAX underperformed by a median 33% in the year before exclusion and by another 14% in the year after, the analysis found. Companies that leave the index tend to remain out of favor with investors.
The findings come ahead of the next quarterly review by STOXX, the index provider, scheduled for September 3. Changes to the DAX, MDAX, and other indices will take effect on September 21. Fast-track inclusion decisions must be finalized by August 31.
Lufthansa remains a candidate for re-entry after its ranking slipped below Fresenius Medical Care due to an increase in the latter’s free float. Deutsche Bank estimated Lufthansa sits just below the fast-entry threshold, with its prospects dependent on share price movements before the August 31 cutoff. Current DAX members Zalando and Scout24 rank as the two lowest in the index and remain well above the automatic exclusion threshold, though both face potential relegation to the MDAX if Lufthansa qualifies for fast entry.
