3rd UPDATE: Cisco, Travelers To Join DJIA As GM, Citi Leave
01 Junio 2009 - 2:31PM
Noticias Dow Jones
Stock market participants applauded news Monday that Cisco
Systems Inc. (CSCO) and Travelers Cos. (TRV) would replace General
Motors Corp. (GM) and Citigroup Inc. (C) in the Dow Jones
Industrial Average.
The addition of Cisco adds a technology component to the DJIA
that many complained was lacking, while the inclusion of Travelers
restores weight that had been lost for the financial services
sector.
GM's bankruptcy filing automatically disqualified the auto maker
from membership, while Citigroup is being removed amid "a
substantial restructuring which will see the government with a
large and ongoing stake," said Dow Jones Editor in Chief Robert
Thomson.
The two companies, which will be replaced in the DJIA on June 8,
currently account for less than 0.5% of the price-weighted index.
As such, even big price moves for the stocks have almost no impact
on the overall index.
Shares of Cisco, a networking-equipment company, were up 6% to
$19.61 in recent trading, while shares of Travelers, a property and
casualty insurer, gained 3.4% to $42.04. The DJIA was up 2.8% at
8734 points on renewed optimism about the economy.
"Any way you look at it, these are the right two companies,"
said Nicholas Colas, chief market strategist for BNY ConvergEx
Group. "Being that it's a price-weighted index, Google or Goldman
would have thrown it out of whack."
Speculation had been rife for months about which companies could
replace GM and Citigroup, which have been members in the DJIA since
1925 and 1997, respectively. Names that came up frequently were
Apple Inc. (AAPL), Ford Motor Co. (F) and even Toyota Motor Corp.
(TM), which would have been the index's first non-U.S.-based
company.
The changes announced Monday come fewer than nine months since
Kraft Foods Inc. (KFT) replaced American International Group Inc.
(AIG), when the insurer received a massive government bailout. The
change reduced the weighting of financial sector companies in the
index, a trend that was exacerbated as Citigroup's shares plunged
amid concerns about the health of U.S. banks.
Historically, it can be years between component changes, but the
financial upheaval of the past several months has pressed Dow Jones
editors to adjust the roster of members.
Some investors had expressed frustration that neither GM nor
Citigroup were removed months ago, but Colas and others said these
criticisms largely ignore the index's purpose. "An index is not
supposed to have judgment about outcomes. So, when something is no
longer viable, like GM, then you make the change," said Colas.
In some respects, Dow component changes aren't that important,
as many investors are more closely attuned to broader market
indexes such as the S&P 500. Overall, roughly $33 billion is
actively tied to the Dow, compared with more than $900 billion
tracked to the S&P 500.
Nonetheless, the Dow is the first point of reference for many
people tracking the health of the U.S. stock market.
"When you're looking at performance, everyone quotes the
S&P. But the Dow still has the monopoly on watching day-to-day
moves," said Thomas Nyheim, a portfolio manager with Christiana
Bank & Trust.
Meantime, the week-long delay in adding the new components to
the DJIA means that the benchmark index will have a bankrupt
component. The delay is industry standard and a necessary move,
given the vast number of funds that track the index, with portfolio
managers needing some time to sell their shares in an orderly
manner.
Since the New York Stock Exchange moved to suspend shares of GM
Monday morning, Dow Jones Indexes will use "the best available
price source" for the next week.
"That might be another exchange, it might be pink sheets. But we
make this decision once the details are confirmed," said a
spokeswoman for Dow Jones' Indexes, noting they continue to monitor
the situation.
Citi shares were down 2 cents at $3.70 in recent trading, while
GM shares were up 9 cents at 84 cents.
-By Geoffrey Rogow, Dow Jones Newswires; 201-938-5360;
geoffrey.rogow@dowjones.com