After listing last month on Frankfurt's Deutsche Börse, db x-trackers Mittelstand & MidCap Germany UCITS ETF (XDGM) is available for distribution to UK investors. It will use physical replication and have an all in fee of 0.4 per cent.
The ETF will track the Solactive Mittelstand & MidCap Deutschland Index. This is composed of 70 small- and medium-sized enterprises typically known for their concentration on niche market segments, a long-term business development outlook and close ties with the founders, management and company. But this may mean that the company's founders retain a substantial proportion of the company's shares and can therefore influence corporate development.
Mittelstand also often have international product distribution.
The companies included in the Solactive Mittelstand & MidCap Deutschland Index have a minimum free-float market cap of €200m (£166.77m) and a minimum turnover of €500,000. The index increases the weightings of companies which have a significant ownership stake of the founder or current management – more than 5 per cent. 21 of the companies or 32 per cent of the index have an ownership stake of more than 5 per cent.
The Solactive Mittelstand & MidCap Deutschland Index excludes financial stocks and industrials are the largest index sector accounting for 36.64 per cent of assets. Consumer discretionary accounts for 18 per cent.
Solactive Mittelstand & MidCap Deutschland Index was only created in December 2013 but simulated total returns suggest that between January 2009 and January 2014 this index would have returned 164.12 per cent.
German small and medium-sized companies typically have a sounder financial base than their European peers, according to Deutsche Bank, with lower leverage, a higher net interest cover and lower dependency on external financing. They also tend to generate higher returns overall on capital.
UK investors can already access large-cap German companies via two London listed ETFs: Amundi ETF MSCI Germany UCITS ETF (CG1) and db x-trackers DAX UCITS ETF (XDDX).
There are few active single country Germany funds easily available to UK investors, an exception being UK domiciled Baring German Growth Trust (GB0000822576).
Read our interview Baring German Growth Trust's manager
Solactive Mittelstand & MidCap Deutschland Index sector breakdown (%)
| Industrials | 36.64 |
| Consumer discretionary | 18.02 |
| Information technology | 14.52 |
| Materials | 14.03 |
| Health care | 9.01 |
| Telecommunications | 5.41 |
| Consumer staples | 2.37 |
Source: Solactive AG
