The Dow Jones Industrial Average companies have been changed 7 times in the last decade and are scheduled for another change of components to be effective September 23. Hewlett Packard, Alcoa and Bank of America Corp will be out of the DJIA.
The moves are:
- Alcoa will be replaced by Nike.
- VISA takes over Hewlett Packard’s position.
- Bank of America Corp is bumped off by Goldman Sachs.
“Changes were prompted by the low stock price of the three companies slated for removal and the Index Committee’s desire to diversify the sector and industry group representation of the index.”
According to some analysts had these changes been made at the beginning of the year the DJIA would be 550 points higher today.
This is good news if you own a financial product like a fixed index annuity which uses an outside index to determine its interest earnings. Depending on the chosen index tracking strategy the Dow component change alone would represent a 4% increase in value.
Keep in mind all the major indexes change their company components periodically in order to better reflect the general markets. However, does it really? Or do these changes simply make it appear the equity markets are doing better than they really are?