Goldman Sachs, Visa and Nike join Dow Jones index

US bourse announces biggest shake-up in a decade

Wed, Sep 11, 2013, 07:35

In the biggest shake-up of the Dow Jones industrial average in nearly a decade, Goldman Sachs, Visa and Nike will join the 30-stock index, with Bank of America, which just two years ago was the largest US 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 Hewlett-Packard.

The changes will take effect at the opening of trading September 23rd, 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 and Google, the first and third-largest US 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 US companies, because of the outsized influence the stocks would have on the average. Mr Blitzer said S&P DowJones Indices has discussed changes to its methodology and would likely talk about it again. “It’s the most recognisable index in the world, but there’s almost no money in it,” said Dave Nadig, president of ETF analytics at IndexUniverse.

Even though S&P Dow Jones Indices classifies Visa as a technology name, adding the nation’s largest credit-card processor along with Goldman Sachs 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 US recession since the Great Depression. The stock is down more than 65 per cent 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 yesterday 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 US company not included in the average. Nike’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 per cent at $183.68, Goldman rose 3.6 percent to $165.21 and Nike added 1.7 per cent to $66.51 after earlier hitting $66.98, a record high.