Goldman Sachs, Visa and Nike will all join the Dow Jones industrial average next week, replacing Bank of America, Hewlett-Packard and Alcoa, respectively, with the latter three holding the unenviable position of being the three cheapest stocks on the historic 30-stock price-weighted index.
The changes will be made after the close of trading on Friday, Sept. 20, and will be effective with the opening of trading on Monday, Sept. 23, S&P Dow Jones Indices, the company behind the Dow average, said today in a statement.
The changes amount to bragging rights—or, perhaps bruised egos for those exiting the Dow—more than anything else. That’s because while the index is familiar even to the financially unsophisticated, it’s hardly a benchmark that professional money managers look to with much seriousness to represent the U.S. equities universe. Those honors go to the S&P 500 Index, a much broader slice of the market.
Indeed, just $30 billion in assets were benchmarked to the Dow Jones industrial average as of the end of last year—less than 2 percent of the $1.61 trillion that was indexed to the S&P 500 as of the same time, according to data provided by S&P Dow Jones Indexes.
“The index 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,” the S&P statement said.
The changes won’t cause any disruption in the level of the index. The divisor used to calculate the DJIA from its components’ prices on their respective home exchanges will be changed prior to the opening on Sept. 23. This procedure prevents any distortion in the DJIA’s reflection of the U.S. stock market.