Dow shake-up is its biggest in a decade
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Wednesday 11 September 2013
Investors in America's benchmark stock index will now have the option to put their money in trainers, credit cards and one of Wall Street's most influential investment banks.
Nike, Visa and Goldman Sachs will join the Dow Jones Industrial Average (DJIA) in the most significant shake-up of the 30-stock index in nearly a decade.
For the first time since 2004, the index compiler, S&P Dow Jones Indices, has decided to add three new companies. They will replace Alcoa, the steel giant that has been part of the Dow for over half a century, Hewlett-Packard, the technology behemoth which last year was forced to take a record $8.8bn (£5.6bn) writedown on its purchase of the UK software firm Autonomy, and Bank of America.
The changes, which will be effective later this month, reflect the relative weakness in the share prices of the three companies that are leaving the index and the outperformance of the new constituents. The Dow's status as the most widely referenced stock index in the US, and among the most widely followed in the world, promises to boost the profile of the new entrants.
Owing to the price-weighted nature of the DJIA, where the overall performance is driven, in large part, by the movements of high-priced stocks, the index compiler deliberately steered clear of stocks such as Google or Apple that might disproportionately affect the Dow's movements. "Clearly Google and Apple are huge companies," David Blitzer, the head of S&P Dow Jones Indices, said, according to CNN. "There's no question they're very important to the US and global economy. But their prices are so high they would completely distort the index."
Of the new entrants, he said: "There's no intention to pick winners. Adding a stock or dropping a stock is not an investment recommendation. It's done to improve the index and make it a better indication of the market overall."
The new Dow: Index in full
Goldman Sachs 2013
Bank of America 2008
American Express 1982
Chevron 2008 (also 1930-1999)
Cisco Systems 2009
DuPont 1935 (also 1924-1925)
Exxon Mobil 1928
General Electric 1907
Home Depot 1999
IBM 1979 (also 1932 – 1939)
Johnson & Johnson 1997
JPMorgan Chase 1991
Procter & Gamble 1932
United Health 2012
United Technologies 1939
Walt Disney 1991
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