Credit Crisis Results In Indexes Removing AIG

By
ETF.com Staff
September 18, 2008
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Dow Jones removes AIG from pair of benchmarks following its near collapse.

The credit crisis already has wound up costing former insurance giant AIG its place in key benchmarks used by money managers and institutions around the world. 

Dow Jones Indexes has removed American International Group from three benchmarks: the Dow Jones Industrial Average; its Dow Jones Global Titans 50 Index; and Dow Jones Insurance Titans 30 Index.

Kraft Foods will replace AIG in the Dow Jones Industrial Average, effective Sept. 22. 

Dow Jones said in a statement that the decision to remove AIG was being made within the indexes "due to financial distress." It added that the 112-year-old Dow Jones Industrial Average benchmark decided not to replace AIG with potential financial names due to the "extremely unsettled conditions" in the sector.

Kraft is the first food maker in the DJIA. Changing sector bets in the benchmark isn't as big of a problem for the well-known benchmark since it has no predetermined criteria, other than being limited to U.S. companies at the forefront of their respective industries.

The DJIA is the basis for many exchange-traded funds. Barclays Global Investors through its iShares lineup, as well as the American Stock Exchange's Diamonds, offer ETFs pegged to the DJIA, while ProShares has leveraged and short ETF plays on the venerable index.

In early trading on Wednesday, shares of Kraft were up 2.27%. The company has a market cap of $50.6 billion, and in the past 52 weeks has traded in the range of $28-$34 per share. AIG (NYSE: AIG), with a market cap of $6.3 billion, was up 15%, but has dropped in the past 52 weeks from a high of around $70 per share to a low of $1.25.

This morning the stock was trading at around $2.35 per share.

The decision was announced a day after the Federal Reserve had to step in and provide an $85 billion secured revolving credit line to AIG in order for it to stay afloat. 

There are some exchange-traded funds now out tracking the DJ benchmarks. SPDRs offers an ETF tracking the Global Titans Index (AMEX: DGT). There are also several ETFs tracking the Global Titans 50 Index in Europe, including one under AXA's EasyETF brand, the EasyETF Global Titans 50 (Euronext: ETT).

Financials are the third-largest weighting in the Global Titans index, and in the case of the Dow Jones Global Titans 50 Index, AIG is being replaced by oil and gas company Schlumberger Ltd (NYSE: SLB).  

In the case of the Insurance Titans 30 Index, AIG is being replaced by QBE Insurance Group Ltd (ASX: QBE).

QBE has released a statement separately indicating that it had no direct exposure to AIG, Merrill Lynch or Lehman Brothers within its investment portfolio.

The changes will be effective as of the opening of trading on Monday.

ETF DAILY DATA

'HEDJ,' the euro-hedged equity fund, added $199 million on Friday, Jan. 23, as total U.S.-listed ETF assets ended the day at $2.016 trillion.

'IWM,' 'HYG' and 'EEM' paced iShares' issuer-leading inflows on Friday, Jan. 23, as total U.S.-listed ETF assets rose to $2.106 trillion.

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