The TecDAX represents the index for technology stocks within the DAX group. It was founded in March 2003 as the successor to the earlier Nemax50 (Neuer Markt Index). Since the DAX30, MDAX and SDAX no longer have any industry-specific restrictions since September 30, 2018, it may well be that a company appears in both the TecDAX and one of the three other indices. This applies, for example, to SAP or Deutsche Telekom.
- The TecDAX comprises the 30 largest technology companies.
- The shares are traded on the XETRA.
- The companies must have their legal or operational headquarters in Germany.
The admission criteria for the TecDAX
The TecDAX lists the 30 largest technology stocks that have their legal seat or operational headquarters in Germany. The size is defined by the market capitalization of the shares in free float and the turnover of the shares traded on the stock exchange. Market capitalization describes the value of the individual share multiplied by the number of shares in free float.
The 30 listed titles are drawn from a list of the 35 largest technology companies. Once a month it is decided whether one company moves up from the list of 35 and another one drops out of the TecDAX.
In addition to the company’s registered office, admission criteria apply
- Admission to the Prime Standard
- Continuous trading on Xetra
- Free float of at least 10%
Prime Standard is the legally regulated segment of the Frankfurt Stock Exchange with the highest standards of transparency.
The price determination in the TecDAX
The shares listed in the TecDAX are quoted as part of XETRA trading every trading day between 9:00 a.m. and 5:30 p.m. In addition, from 8:00 a.m. to 9:00 a.m. and between 5:45 p.m. and 8:00 p.m. there is manual trading, the successor to floor trading. The so-called L-TecDAX (late TecDAX) shows as an indicator how share prices develop outside of regular trading hours. The calculation frequency takes place every second.
The dot-com bubble – the black hour of tech values
In March 2000 there was an unprecedented slump in technology stocks in Germany. The starting point for the then Nemax50 was to recalculate the exchange rates to the level of 1,000 meters on December 30, 1997 as a starting value. As of July 31, 1998, the Nemax50 had more than tripled. On March 10, the index reached its all-time high of 9,694.07 points. Then the bubble burst and the index slipped below the 1,000 point mark. On March 21, 2003 it was only listed at 350.95 points. The price loss was at its peak 97 percent, in fact a complete destruction of the capital of the stocks listed in the index. On this date, the Nemax50 ended and was replaced by the TecDAX.
Two variants of the TecDAX
The TecDAX is managed both as a trading index and in the form of a performance index. The performance index is based on the assumption that all dividend distributions would have been reinvested. This calculation shows how a company actually did. The price index only takes the price development into account.
Advantage of the performance index
Stock market prices are not looking backwards, but rather price investors’ expectations for the future. In the technology sector in particular, these expectations can be oriented for years to come. A company is working on an exciting technological development. The chances of success are increasing, the price is rising continuously. Since the product has not yet been sold, there are still no profits, despite rising prices. The problem is: If a competitor comes onto the market with the same product beforehand, the effort was in vain and the price collapses. If viewed in the context of the performance index, the price development would have been much more restrained due to the lack of distributions.
What advantages does an investment in the TecDAX offer?
At the time of the Neuer Markt, the composition of the forerunner Nemax50 was completely different. It was mainly software companies or biotech companies that were listed in this index. The bottom line was that 90 percent of the paper was high-risk.
The TecDAX now includes companies such as SAP, Telekom or an outsourced subsidiary of Siemens. The TecDAX today covers sectors such as:
- wind energy
- mechanical engineering
- social media
- semiconductor technology
- IT services
An investment is limited on the one hand to the technology sector with its great opportunities, but on the other hand it also offers a certain stability with regard to the volatility of the individual stocks.
The easiest way to benefit from the positive developments in this sector is to enter via an index fund that tracks the TecDAX. A look at the current status of the TecDAX makes it clear that both long-established companies that are also listed in the DAX30 or MDAX and young companies with great potential can be found in the index.