The addition of Apple was supported by more suggestions, arguments and advice that it belongs in The Dow than most previous changes. At the same time, it would have been quite difficult to add Apple if it hadn’t split its stock seven for one in June 2014. Whether one reason for the split to make Dow membership possible is a question for Apple, not S&P Dow Jones Indices. We don’t discuss possible index changes with the companies affected or with anyone outside of the committee overseeing the particular index.
What About AT&T
The Dow has 30 members and adding one means removing another. The decision to add, or remove, a stock from the The Dow (or any other index) is not an investment opinion. No buy/hold/sell. The decision is based on what can make the index a better market measure. There were two telecommunication companies in The Dow – AT&T and Verizon – and the decision on which to remove was based AT&T’s lower stock price. Since The Dow is price weighted, the lower a stock price, the less impact on the index.
An analysis in Seeking Alpha noted that stocks exiting from The Dow often do well. Just as being added to an index gets a stock noticed, being removed can also generate some investor interest. Some investors believe that by the time a stock joins an index; its price has already risen while those leaving may be ready to rebound.
This article was written by David Blitzer, chairman of the index committee, S&P Dow Jones Indices.
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