The Dax remains the most trusted index for 60% of the retail investor base in Germany, according to the latest online poll conducted by the German derivatives association (Deutscher Derivate Verband - DDV).
"As a rule, retail investors in Germany first prefer the domestic Dax, MDax and SDax indices," said Lars Brandau (pictured), managing director, DDV. "This may be related to the export strength of German companies, but also to the belief that investors know the domestic companies better and the sustainable trust is greater. As soon as investors resort to foreign indices, one can often assume that they have already bought domestic indices. Hardly any end-investor in Germany would first fall back on the S&P 500."
However, the DDV survey found that the Dow Jones is the preferred underlying for 15.4% of self-directed investors. In third place, with 13.6%, is the German mid-cap index, the MDax and the SDax, Germany's small-cap index. The Eurostoxx 50 index remains as a marginal choice for German investors with only 6.4% of investors preferrring the index for their investments whereas the Nikkei 225 index is the most prefered index for just 4.6% of Germany's retail investors.
Looking at SRP data for the past two years, the popularity of indices as underlyings has been increasing continuously. In 2016, there were only two indices within the top 10 underlyings and in 2017, there were four indices in the top ten most used underlyings, with the Dax as most popular index, followed by Eurostoxx 50, Dow Jones and Nasdaq 100. So far this year, there are five indices in the top 10 underlying ranking. SRP data confirms the findings of the DDV survey as the Dax is still leading the chart, followed by the Dow Jones as the second most used index, and the Nasdaq 100. Eurostoxx 50 is only at the fourth place, and the S&P 500 comes next within the structured products market.
The offer of index-linked structures has increased over the past few years, according to Brandau. "However, demand among investors from Germany still seems to be restrained," he said. "The interest in products linked to indices as underlying is driven above all by the preference for exchange-traded funds (ETFs). Cheap products with a broader range than in individual shares have been in vogue for years. In the end, structured securities also benefit from this, which incidentally are offered longer and are often even cheaper."
In concrete terms, it is difficult to say with certainty which foreign indices will become popular in the future, said Brandau, pointing that the decisive factor for retail investors will be "the realisation that it is important to be diversified".
"A balanced portfolio cannot manage with just one index in the long term," said Brandau. "However, looking at participation products is not only worthwhile looking at indices but also at theme products. With structured securities, ideas can be implemented and bought much faster than ETF's."
A total of 2,106 self-directed retail investors participated in the online survey, which was conducted jointly with six major finance portals.
Related stories:
German retail investors keep faith in Dax
German trade bodies urge EU-Commission not to postpone Priips review
The total cost for investors of a structured product in Germany is 71bp a year, DDV