GM, Citigroup Removed From Dow

By
ETF.com Staff
June 01, 2009
Share:

Though not an unpredictable move, Citigroup could eventuallyreturn to the DJIA.

 

The Dow Jones Index Oversight Committee announced today thatGeneral Motors (NYSE: GM) and Citigroup (NYSE: C) will be removed from the DowJones Industrial Average, effective June 8. Tech giant Cisco Systems (NASDAQ:CSCO) and the insurance-focused The Travelers Companies (NYSE: TRV) will taketheir places.

The move will boost the already-heavy technology weightingin the Dow, and will add an insurance company to take the place formerly heldby AIG, which exited the index in September 2008.

For GM and Citigroup, the removal was predictable. GM'sbankruptcy automatically disqualified the company from the index, and Citigrouphas become essentially a government ward with an uncertain future ahead of it.

"We were reluctant to remove Citigroup at the height ofthe financial frenzy, but it is clear that the bank is in the midst of asubstantial restructuring which will see the government with a large andongoing stake," said Robert Thomson, editor-in-chief of Dow Jones, in astatement.

The selection of Cisco comes as little surprise. It has thethird-largest market capitalization of any U.S. company not previouslyincluded in the Dow, trailing only Google and Apple. Its servers essentiallyrun the Internet, which occupies a central place in the American economy.

Travelers, however, is a bit of an unusual choice, due toits relatively small size. With a market cap of $24 billion, it isn't even thelargest insurer in America;that claim falls first to Berkshire Hathaway, and second to MetLife. It is the78th-largest component in the S&P 500, and will be thesecond-smallest company in the Dow (after Caterpillar, with a market cap of $22billion).

While there is no requirement for the Dow to hold thelargest companies in America,reaching this deep into the market capitalization spectrum is unusual. Manyexpected a larger financial services company, such as Wells Fargo, to enter theindex instead. Clearly, however, the Dow Jones team felt that insurance was anecessary industry to represent in the index, and they chose Travelers to lockdown the property and casualty segment of the industry.

This is not the first time Travelers has been in the index.The company entered the index in 1997, and was then acquired by Citigroup in1999.

Recently, in fact, a number of companies have made round-tripsto the index. AT&T was booted from the index in April 2004, only tore-enter in December 2005 after its merger with Dow component SBCCommunications. Chevron was shoved from the index in 1999, only to return inFebruary 2008.

The editorial team at Dow Jones suggested that another round-tripcould be coming.

"We genuinely hope that once [Citigroup] has refashioneditself that we will again be able to consider it for inclusion," said Thomson. "Citigroupis a renowned institution, not only in this country, but around the world."

 

ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

Small-cap stock ETF 'IWM' took a breather and found itself among the biggest creations Monday, July 27, raking in more than $420 million in one day. Total U.S.-listed ETF assets dropped to $2.111 trillion.

A roster of ETFs including 'IJH' and 'IWM' paced iShares' issuer-leading inflows Monday, July 27. Total U.S.-listed ETF assets dipped to $2.111 trillion.

ETF.COM ANALYST BLOGS

By Paul Britt

Toss and turn about whether to hedge currency risk, but don’t lose sleep over the derivatives themselves.

By Dave Nadig

With the China A-Share market half-broken, ETF investors should be very, very cautious.

By Drew Voros

Price depreciation and continued outflows have made for a tough few years.

By Dave Nadig

Legendary investor trips over how ETFs work.

ETF INDUSTRY PERSPECTIVE

By Invesco PowerShares

A more in-depth look at the smart-beta survey's results.

By Invesco PowerShares

Smart beta appears to be poised for further growth.