Vanguard’s German equity ETF ditches DAX index

Sep 24th, 2020 | By | Category: Equities

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Vanguard has changed the index underlying its UCITS German equity ETF, switching out of the widely followed DAX in favour of a broader market benchmark calculated by FTSE Russell.

Vanguard’s German equity ETF ditches DAX index

The fund is the only UCITS ETF from a major issuer to offer regular passive broad market exposure to German equities.

As of 18 September, the Vanguard DAX UCITS ETF began tracking the FTSE Germany All Cap Index and switched its name to the Vanguard Germany All Cap UCITS ETF to reflect the change.

The fund has also updated its tickers – it now trades on London Stock Exchange in pound sterling under the ticker VGER LN and on Xetra in euros under VGER GY.

The ETF houses approximately €40 million in assets under management and maintains its expense ratio of 0.10%.

Improved risk-adjusted returns

According to a shareholder notice issued by Vanguard, the index swap aims to provide investors with better long-term investment returns on a risk-adjusted basis.

The new index provides investors with exposure to 150 constituents, representing approximately 95% of the German equity market, across large-, mid-, and small-capitalization stocks. This compares to a narrower portfolio of just 30 stocks for the DAX which equates to roughly 70% of the country’s equity market by market capitalization.

The incoming FTSE index has greater exposure to the financials sector with a weight of 19.9% compared to 14.4% in the DAX and slightly less exposure to consumer goods, 16.1% vs 18.55%. Beyond this, sector exposures are broadly similar with only marginal differences. The next largest sector exposures are basic materials (16.0% vs 16.4%), industrials (14.0% vs 13.3%), and information technology (13.5% vs 13.2%).

None of the other major issuers in Europe offers an ETF providing regular, market-cap-weighted broad-market exposure to German equities, meaning the ETF now functions as a genuinely differentiated alternative for beta investors. It also aligns more closely with Vanguard’s traditional investment philosophy which emphasizes the importance of diversification.

Aside from this, there are several rival ETFs with considerably more AUM, such as the €5.7 billion iShares Core DAX UCITS ETF, the €3.5bn Xtrackers DAX UCITS ETF, and the €1.0bn Deka DAX UCITS ETF. With Vanguard’s proposition having failed to generate any significant traction with investors, it is inevitable that commercial considerations also influenced the decision to reposition the fund.

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