ETF Trends
ETF Trends

It doesn’t happen often: Dow Jones announced
they will be changing the composition of the Dow Jones industrial average, changing the exchange traded funds (ETFs) that track this
index.

Two component stocks will be replaced: Bank of America Corp. (BAC) and Chevron Corp. (CVX)
will replace Altria Group Inc. (MO) and Honeywell international Inc. (HON),
effective as of Feb. 19.

These are the first changes made since
April 8, 2004, when 3 stocks out of 30 were replaced.

A lot of thought goes into any changes in the index:

  • Altria, formerly known as Philip Morris Cos., had been on the index since Oct. 30, 1985.  Restructuring is taking place at the company, which will ultimately result in a much narrower and smaller company.
  • Honeywell is dropped because it’s the smallest of the industrials in terms of revenue and earnings.
  • Any changes
    cause a thorough review of all the stocks, and the financials industry was
    under represented, hence the addition of Bank of America.
  • The oil and
    gas industry is important to the world’s economy, as well, and it was
    felt that another representative was needed to join Exxon Mobil Corp. (XOM).

The "Dow" was created by Charles Dow as a 12-stock index in May 1896,
and is the best-known stock market barometer in the world. Today, it holds 30 companies, weighted by their price.

The component changes will change the look of the Diamonds Trust Series 1 (DIA) and Ultra Dow 30 ProShares (DXD). Now is a good time to look at your portfolio and make sure that with these additions, you’re still diversified enough.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.