Hedge fund shorts the DAX index top-performing stock

The DAX index has jumped sharply in the past few years and is now hovering at its all-time high. It joins other European indices like the FTSE MIB and CAC 40, which are also trading at their record highs. This rally has been led by a few companies, including SAP, which published strong results on Wednesday. 

Rheinmetall is the best performer

Rheinmetall, a company that most people have never heard about, is the best-performing stock in the DAX index. Data compiled by Investing shows that it has surged by 268% in the past three years. Commerzbank, the second-best performing company, has risen by just 90% in this period.

Most notably, Rheinmetall stock has surged by over 731% from its lowest level in 2020. This makes it one of the top-performing companies in Europe. It has also risen by 15% this year, making it the best-performing DAX index constituent. Its surge has brought its total market cap to over 14 billion euros. 

Despite this performance, most people don’t know what the company is because it does not manufacture consumer-facing products. Instead, it builds its products for the vehicle and defense industries. 

As a result, the company has grown well as demand for defense equipment has risen as the war in Ukraine continues. Tensions have also emerged between the US and China while Houthi rebels are attacking ships at the Red Sea. Most European companies have announced increased defense spending in the past few months.

This growth has translated to strong financial results. The most recent results shows that the company’s operating margin jumped to 8.4% in the first nine months of the year while its operating profit stood at €387 million, €56 million higher than its guidance. 

The management also upgraded its targets. It expects to hit sales of between €13 and €14 billion in 2026 with its operating margin of 15%. These targets were supported by its strong backlog of over €36 billion.

Rheinmetall stock price chart

Hedge fund has a short position

As the Rheinmetall stock price jumps, not everyone is convinced that the rally will continue. Qube Research, a hedge fund, has placed a $157 million short position on the stock. It has also placed  short against Volkswagen, Siemens Energy, and Deutsche Bank. According to Bloomberg, these short positions are valued at about $1 billion.

Qube Research joins other hedge funds like Marshall Wace, which has a $940 million short position on German stocks. These funds note that the German economy is not doing well and that its performance will hit these companies. Most recently, German data showed that exports have slumped while the economy is on the verge of a recession.

Still, it is unclear whether these shorts will work out in the long term, because, for now, Rheinmetall has continued surging on.