* Goldman Sachs, Visa, Nike new members of century-old
* Bank of America ends turbulent five years in blue chip
* Aluminum company Alcoa exits after more than 50 years
* Just $30-$35 bln in funds tracks 'well known' Dow
By Rodrigo Campos
NEW YORK, Sept 10 In the biggest shake-up of the
Dow Jones industrial average in nearly a decade, Goldman Sachs,
Visa and Nike will join the storied 30-stock index, with Bank of
America, which just two years ago was the largest U.S.
bank by assets, one of the names exiting the Dow.
The three newcomers - an investment bank, credit card
payment processor and apparel company, respectively - will also
replace Alcoa, in the index since 1959, and
The changes will take effect at the opening of trading Sept.
23, said S&P Dow Jones Indices, whose index committee makes
decisions on the make-up of the average.
With the changes, the committee again passed on a chance to
include Apple Inc and Google Inc, the first-
and third-largest U.S. companies by market value. Apple stock
trades above $500 and Google closed Monday above $888.
"We looked at a handful above $200, Google and Apple among
them," said David Blitzer, managing director and chairman of the
S&P Index Committee.
"Those are obviously well-known, blue-chip, global
companies. Both won't work in the Dow because of their price."
The Dow, created in 1896, is still considered Main Street's
view of the stock market, even though its method of weighting
stocks by price, rather than market value has kept out names
like those two, among the most important U.S. companies, because
of the outsized influence the stocks would have on the average.
Blitzer said S&P Dow Jones Indices has discussed changes to
its methodology and would likely talk about it again.
"It's the most recognizable index in the world, but there's
almost no money in it," said Dave Nadig, President of ETF
analytics at IndexUniverse LLC.
Even though S&P Dow Jones Indices classifies Visa Inc
as a technology name, adding the nation's largest credit-card
processor along with Goldman Sachs Group Inc reflects a
further tilt toward financial services.
Bank of America's run in the Dow was not one for the history
books. The stock joined the index in February 2008, just a few
months into what became the worst U.S. recession since the Great
The stock is down more than 65 percent since it joined the
Dow. The company was engulfed by the financial and housing
crisis after it acquired sub-prime mortgage originator
Countrywide Financial in January 2008.
The bank said Tuesday being removed from the index "has no
impact on our business or our strategy for providing solid
returns to shareholders."
With a market value of about $157 billion, it becomes -
other than Apple and Google - the biggest U.S. company not
included in the average.
Nike Inc's addition marks the first inclusion of an
apparel maker since International Shoe was replaced in 1933,
according to S&P Dow Jones Indices records.
Following the announcement, Visa shares were up 2.9 percent
at $183.68, Goldman rose 3.6 percent to $165.21 and Nike added
1.7 percent to $66.51 after earlier hitting $66.98, a record
high. The Dow was up 0.7 percent on the day.
The changes announced Tuesday are the first in nearly a
year, after UnitedHealth Group replaced Kraft's spinoff
Mondelez International in September 2012.
NOT WALL STREET'S BENCHMARK
Just $30 to $35 billion is indexed against the Dow,
according to Blitzer, just a fraction of the roughly $1.6
trillion indexed to the S&P 500.
"It is certainly a retail (investor) number, when people
talk about the Dow," said Joe Saluzzi, co-manager of trading at
Themis Trading in Chatham, New Jersey.
Funds that attempt to replicate major indexes make up a
large part of the U.S. stock market. Because they are designed
to mimic market performance at a low cost, they have become
among the most popular investment vehicles for investors.
"Most of the money is being managed toward the broader
indices so I don't think you have that much in the way of
tracking. I don't think it's as important as when there is an
S&P (change)," Saluzzi said, referring to when index funds buy
companies added to an index and sell those that are removed.
The Dow's 30-stock membership is generally considered too
small for a broad-based mutual fund, and the priced-weighted
design is problematic because smaller companies with higher
share prices can exert disproportionate influence.
Presently, IBM, the highest-price stock in the average,
accounts for more than 9 percent of the index, even though it is
the eighth-largest by market value.
The additions of Visa and Goldman partly tame the heavy IBM
influence. IBM's weighting in the Dow will drop to about 8
percent from 9.4 percent, and Visa and Goldman will account for
7.7 and 6.9 percent of the average, according to Birinyi
The SPDR Dow Jones Industrial Average ETF, a trust
that tracks the Dow's performance, has net assets of $11.9
billion, ranking it in the top 30 among U.S. ETFs, according to
Thomson Reuters data. The largest ETF, the SPDR S&P 500 ETF
, has $143.9 billion in assets.
In volume terms the Dow ETF, previously known as the
Diamonds Trust, ranks 35th among the most actively traded ETFs
with a 50-day average of 5.4 million shares exchanging hands.
The SPY averages 106 million shares traded daily.
THE NEW OUTPERFORMERS?
The three stocks slated to join the Dow have outperformed
the blue-chip index's 14.9 percent gain in 2013 to Monday's
close. Visa had gained 17.8 percent, Goldman 25 percent and Nike
Of the stocks that will leave, Alcoa had underperformed the
index, with a 6.9 percent year-to-date fall. Bank of America was
up nearly 25 percent and HP had jumped 57 percent.
Alcoa said being dropped from the Dow would not affect its
ability to carry out its strategy. It seen as a candidate for
elimination for some time, with its market cap of $8.7 billion
easily the lowest in the average.
It is the first three-for-three change to the index since
April 8, 2004, when American International Group, Pfizer and
Verizon replaced AT&T Corp, Eastman Kodak and International
Paper. AT&T later returned following a merger.