Deutsche Bank's equity strategists have cautioned investors that admission to Germany's flagship DAX index often fails to translate into sustained stock-price gains, a finding they published ahead of the index's next scheduled review.
STOXX will review the constituents of the DAX on September 3, with any amendments becoming effective on September 21. One of the names under consideration this year is Lufthansa, which has repeatedly been close to rejoining the index since 2020. However, Deutsche Bank analysts led by Carolin Raab said the airline's chances "have weakened in recent days."
The analysts attribute the change in Lufthansa's ranking to an increase in the free float of DAX member Fresenius Medical Care, which moved above Lufthansa on the eligibility list. Deutsche Bank's estimates now place Lufthansa slightly below the threshold required for a fast-track entry, meaning the final outcome is likely to depend on share-price movements before the August 31 cut-off.
Among current DAX constituents, Zalando and Scout24 sit at the bottom of the rankings and would be vulnerable to relegation to the MDAX should Lufthansa qualify. The analysts note both companies rank closely together but remain comfortably above the automatic-exclusion threshold.
Deutsche Bank also examined two decades of DAX history to assess the market impact of index rebalances. Their findings point to a counterintuitive short- and medium-term pattern where new DAX entrants typically lag the index on the day their inclusion takes effect, while those removed from the index often outperform on that same day. On median, joiners underperform the DAX by 2% on rebalance day, and leavers outperform by 2%.
The underperformance of new entrants is not limited to the immediate rebalancing date. Over the following year, the median underperformance for new members stands at 8% relative to the DAX. Of 41 companies that moved into the index in the sample period, only 16, or 39%, outperformed the index during their first year as members.
Deutsche Bank's research also highlights a pattern of pre-inclusion strength: companies tend to rally before joining the DAX. "DAX inclusion is not as beneficial for stock price performance as one might expect," the analysts wrote. "As companies tend to rally ahead of index inclusion, their shares tend to underperform once index inclusion is achieved." They report that, on median, stocks had outperformed the DAX by 20% in the year leading up to entry, implying that profit-taking may follow the official inclusion.
The trend for companies leaving the index is similarly persistent. Stocks that were dropped from the DAX underperformed by 33% on median in the year preceding exclusion, and they continued to underperform by a further 14% in the year after leaving.
One tangible advantage associated with being part of the DAX is improved liquidity. Deutsche Bank's analysis finds that trading volumes rise for companies joining the DAX and fall for those departing: median volumes for joiners increase by 15%, while volumes for leavers decline by 15%. "While DAX inclusion helps in terms of liquidity, it is usually not a trigger for outperformance," the analysts concluded.
With the STOXX review approaching and an August 31 cut-off for fast inclusion, the interplay between share-price moves, free-float adjustments and ranking thresholds will determine the final set of index changes. For investors and market participants, the Deutsche Bank study underscores that DAX membership brings clearer liquidity benefits than it does reliable price appreciation.