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The Dow Jones Industrial Average is undergoing major changes effective Aug 31 before market open. The three stocks, namely oil giant Exxon Mobil (XOM - Free Report) , drugmaker Pfizer (PFE - Free Report) and defense contractor Raytheon RTX, in the blue-chip index will be removed.
These are replaced by cloud-based customer relationship-management software company salesforce.com Inc. (CRM - Free Report) , biotech firm Amgen Inc. (AMGN - Free Report) and industrial conglomerate Honeywell International (HON - Free Report) . This is the first reshuffle since 2013.
The shake-up came on the back of Apple’s (AAPL - Free Report) 4-for-1 stock split, which will reduce the information technology weighting of the 30-stock index to 20.3% from the current 27.6%. This is because Apple has soared more than 70% this year and achieved the crown of the first U.S. public company to reach $2 trillion in market value. The tech giant has contributed more than 1,400 points to the 124-year-old blue-chip index this year, making it by far the largest contributor. Unlike the S&P 500, the Dow Jones is price-weighted, meaning stocks with higher share prices are given greater weighting (read: 5 Top-Ranked ETFs to Taste Apple's $2 Trillion Market Cap).
After the reshuffle, UnitedHealth Group (UNH - Free Report) will become the most heavily weighted component in the Dow, followed by Home Depot (HD - Free Report) and Amgen (AMGN - Free Report) . Salesforce and Honeywell will occupy the sixth and 11th position in the index, respectively.
What Does Shake-Up Means?
Given the tech sector dominance, many Wall Street analysts believe the post-reshuffle Dow Jones could struggle to catch up with the S&P 500 and the Nasdaq Composite, which have been hitting new highs.
The recent history suggests that the near-term performance of shares added to the stock-market gauge actually perform relatively worse, while those booted from the index have outperformed over the past 20 years, according to Dow Jones Market Data. In particular, the stocks that have added to the Dow Jones have gained 0.3% in the last decade while the ones removed have climbed 10.37%. And since 1999, Dow additions have plunged 10.1% while those removed over the same period declined a comparatively less-severe 2%.
Nevertheless, salesforce.com is the first cloud-software entry into the Dow Jones Industrial Average. Exxon’s replacement seems to be a good move as it has emerged as one of the leading players in the booming cloud computing business amid the pandemic. salesforce.com represents the fuel of the new economy: code, cloud and digitization, per CNBC. Shares of CRM surged more than 25%, marking the best one-day gain ever, in the Aug 26 trading session following blockbuster second-quarter earnings results (read: 5 Tech ETFs at the Forefront of the Latest Sector Rally).
The inclusion of Amgen indicates the rise of biotech as the race for COVID-19 vaccine continues while Honeywell made a comeback after a 10-year break.
Given this, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , which tracks the Dow Jones Index, has been in the spotlight. Investors seeking to ride the reshuffle in the index could tap this ETF.
Let’s take a closer look at the fundamentals of DIA and its performance.
DIA in Focus
This is one of the largest and most-popular ETFs in the large-cap space with AUM of $23.4 billion and average daily volume of 3 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding no more than 12.1% share. Information technology (27.7%), consumer discretionary (14.8%), healthcare (14.3%), industrials (13.1%) and financials (12.6%) and are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. It has added 0.6% so far this year (read: Dow Reclaims 28,000: 5 Stocks Driving the ETF Rally).
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Dow Jones ETF in Focus on Index Shake-Up
The Dow Jones Industrial Average is undergoing major changes effective Aug 31 before market open. The three stocks, namely oil giant Exxon Mobil (XOM - Free Report) , drugmaker Pfizer (PFE - Free Report) and defense contractor Raytheon RTX, in the blue-chip index will be removed.
These are replaced by cloud-based customer relationship-management software company salesforce.com Inc. (CRM - Free Report) , biotech firm Amgen Inc. (AMGN - Free Report) and industrial conglomerate Honeywell International (HON - Free Report) . This is the first reshuffle since 2013.
The shake-up came on the back of Apple’s (AAPL - Free Report) 4-for-1 stock split, which will reduce the information technology weighting of the 30-stock index to 20.3% from the current 27.6%. This is because Apple has soared more than 70% this year and achieved the crown of the first U.S. public company to reach $2 trillion in market value. The tech giant has contributed more than 1,400 points to the 124-year-old blue-chip index this year, making it by far the largest contributor. Unlike the S&P 500, the Dow Jones is price-weighted, meaning stocks with higher share prices are given greater weighting (read: 5 Top-Ranked ETFs to Taste Apple's $2 Trillion Market Cap).
After the reshuffle, UnitedHealth Group (UNH - Free Report) will become the most heavily weighted component in the Dow, followed by Home Depot (HD - Free Report) and Amgen (AMGN - Free Report) . Salesforce and Honeywell will occupy the sixth and 11th position in the index, respectively.
What Does Shake-Up Means?
Given the tech sector dominance, many Wall Street analysts believe the post-reshuffle Dow Jones could struggle to catch up with the S&P 500 and the Nasdaq Composite, which have been hitting new highs.
The recent history suggests that the near-term performance of shares added to the stock-market gauge actually perform relatively worse, while those booted from the index have outperformed over the past 20 years, according to Dow Jones Market Data. In particular, the stocks that have added to the Dow Jones have gained 0.3% in the last decade while the ones removed have climbed 10.37%. And since 1999, Dow additions have plunged 10.1% while those removed over the same period declined a comparatively less-severe 2%.
Nevertheless, salesforce.com is the first cloud-software entry into the Dow Jones Industrial Average. Exxon’s replacement seems to be a good move as it has emerged as one of the leading players in the booming cloud computing business amid the pandemic. salesforce.com represents the fuel of the new economy: code, cloud and digitization, per CNBC. Shares of CRM surged more than 25%, marking the best one-day gain ever, in the Aug 26 trading session following blockbuster second-quarter earnings results (read: 5 Tech ETFs at the Forefront of the Latest Sector Rally).
The inclusion of Amgen indicates the rise of biotech as the race for COVID-19 vaccine continues while Honeywell made a comeback after a 10-year break.
Given this, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , which tracks the Dow Jones Index, has been in the spotlight. Investors seeking to ride the reshuffle in the index could tap this ETF.
Let’s take a closer look at the fundamentals of DIA and its performance.
DIA in Focus
This is one of the largest and most-popular ETFs in the large-cap space with AUM of $23.4 billion and average daily volume of 3 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding no more than 12.1% share. Information technology (27.7%), consumer discretionary (14.8%), healthcare (14.3%), industrials (13.1%) and financials (12.6%) and are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. It has added 0.6% so far this year (read: Dow Reclaims 28,000: 5 Stocks Driving the ETF Rally).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>