Apple (AAPL) didn't make the cut, but Unitedhealth Group (UNH) did. The cut here is for the Dow Jones Industrial Average, the 116-year-old index that will see the insurance company join its 30-stock ranks and Kraft (KFT), which is splitting in two, taken out.
For shareholders of these companies, it's basically a crap shoot as to what happens next, if the past few changes are any indication of what direction the two stocks will head. Going back to 2004 and including Friday's announcement, the Dow has brought in nine new members, and of course removed the same number. There might be a short-term effect, but if you're at all tempted to gauge whether over the longer term being added or subtracted matters one way or the other, don't expect any guarantees.
The last few years, it should be said, have been chaotic for some of the Dow stocks -- in particular, names like AIG (AIG), GM (GM) and Citigroup (C), whose government aid following the financial crisis de-normalized their ownership structure. That out of the way, let's start by looking at the most recent additions, using historical data from FactSet.
Some of Each
AIG joined the Dow on April 8, 2004, and left Sept. 22, 2008. During that time, it had a cumulative return of negative 22%. For most of its history with the index, AIG actually was up, but that started to change for the worse in December 2007, and by Jan. 30, 2008, it was in the red for the rest of its run.
The same day AIG became a member, Pfizer (PFE) and Verizon (VZ) also joined the Dow, and they remain so today. Since then, the drug maker has slipped 2.6%, while the phone company has more than doubled, gaining 107%.
For nearly four more years, the Dow was unchanged, until Feb. 19, 2008, when Bank of America (BAC) and Chevron (CVX) got the call. They've gone in opposite directions. The bank, one of the most actively traded stocks in the U.S., has slumped 75.8%, while the oil producer has risen 60.2%.
Kraft, which will officially exit the Dow next Friday, was the replacement for AIG in September of that year. It's done fine while part of the index, climbing 39.9%.
The newest Dow members, networker Cisco (CSCO) and insurance seller Travelers (TRV), have been in since June 8, 2009. Cisco is right around where it was then, up 0.3% in the past three-plus years, though Travelers has had a much better run, advancing 70.5%.
So that puts the count at five gainers and three decliners for those added to the Dow in the last eight years, though Cisco barely makes it into the win column.
Hitting the Road
What about leaving the Dow -- is that good or bad? Again, it's a mixed showing.
Since AIG left in 2008, it's shed another 56.5%. Car maker GM has dropped 31.2% following its removal from the Dow in June 2009, and the company that left on the same day, financial-services firm Citigroup, has ticked up 0.9%.
AT&T (T) left the index in April 2004, but we're going to keep it out of today's discussion. That's because it was bought in 2005 by fellow Dow component SBC, which then changed its name to AT&T.
Of the departed (minus AT&T), there are four winners -- with Citi making like Cisco and collecting a slight gain -- and three losers. The total count of the changes, then, is nine up (two barely, but we'll stick with the letter of the law), six down and one that we're leaving out of consideration.
Remember, the keepers of the Dow are trying to pick a set of companies that reflect the economy, and by adding Unitedhealth, they're giving a nod to the growing role of the medical industry in the U.S. Their job isn't to make a call on whether a stock is going to go up or down by its inclusion in or exclusion from the index. For most of the Dow's existence, Wall Street Journal editors chose the components. Now, it's overseen by the managing editor of the WSJ, the head of Dow Jones Indexes research and the head of CME Group research.
At the moment, industrials make up 20.7% of the index by sector allocation, with technology next at just under 17%. Basic materials is the lowest, at 3.45%.
For a broader list of the Dow over time, The Wall Street Journal has a good list of the recent changes here: The Ins and Outs of the Dow.