Dow boots Exxon Mobil from blue chip club in stunning ‘out with energy and in with cloud’ shake-up - The Dallas Morning News

Exxon Mobil Corp, Pfizer Inc. and Raytheon Technologies are being kicked out of the Dow Jones Industrial Average as part of the stock benchmark’s biggest reshuffling in seven years.

Salesforce.com, Amgen Inc. and Honeywell International will enter the 124-year-old equity gauge a week from today, its overseers said. The moves were prompted when Apple Inc.‘s stock split effectively reduced the weighting of technology companies in the Dow.

While any change to the Dow is notable, the ejection of Irving-based Exxon Mobil — the world’s biggest company as recently as 2011 — marks a particularly stunning reordering, reflecting the steady decline of commodity companies in the American economy.

Worth $525 billion in 2007 and more than $450 billion as recently 2014, Exxon’s stock had fallen in four of six years before 2020 and is down another 40% year to date.

“Those changes are a sign of the times -- out with energy and in with cloud,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

The latest reshuffling is more testament to the ascent of technology companies, a trend amplified by this year’s COVID-19 lockdowns. While the Dow average is still 4.2% off its February record, the tech-heavy Nasdaq 100 is almost 20% above the pre-pandemic all-time high.

Founded in 1999, Salesforce was one of the best-performing stocks of the bull market following the global financial crisis, rising 27-fold since March 2009. Amgen is among the world’s biggest biotechnology companies with a market value of about $137 billion, though it’s replacing a company — Pfizer Inc. — that is about $90 billion larger.

The blue-chip index weights its constituents by price rather than market value, making it different from the broader S&P 500. A committee chooses members in an effort to maintain “adequate” sector representation and favors a company that “has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors,” according to its website. Other major indexes add and subtract members on a rules-based process.

While its influence has faded over the years as passive managers linked to benchmarks based on market value, the Dow remains an exclusive club and still serves as one of the highest profile showcase of American industrial heft.

Roughly $31.5 billion of assets are benchmarked to the Dow, with $28.2 billion of passively managed funds linked. (The figures are $11.2 trillion and $4.6 trillion for the S&P 500.)

The last time three companies were added to the Dow was seven years ago, when Visa Inc., Goldman Sachs Group Inc. and Nike Inc. displaced Bank of America Corp., Hewlett-Packard Co. and Alcoa Inc.

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https://www.dallasnews.com/business/energy/2020/08/24/dow-boots-exxon-mobil-from-blue-chip-club-in-stunning-out-with-energy-and-in-with-cloud-shake-up/

2020-08-24 22:20:41Z
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