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Fundranker Blog—DJIA Changes

DJIA Changes

The Dow Jones Industrial Average, made up of 30 U.S. industrial stocks chosen by the managing editor of the Wall Street Journal, changed last week. As of Monday, June 8, General Motors Corp., which declared bankruptcy on June 1, and Citigroup Inc. were removed from the average. Travelers Companies Inc. replaced Citigroup and Cisco Systems Inc. replaced General Motors.

General Motors had to be replaced because a company in bankruptcy is on a different playing field than competitive businesses, and it can no longer contribute to an index that tries to reflect the market as a whole. Although Citigroup is not in bankruptcy, it also was replaced because it is headed into a period of significant restructuring, and the Wall Street Journal felt its stock would reflect that process more than it would the banking sector.

The decision on which companies should replace General Motors and Citigroup was tied to the last time a DJIA component was changed. AIG was replaced by Kraft Foods last September, so Travelers Companies was chosen to renew an insurance presence in the DJIA. Also because of the earlier addition of Kraft Foods, the Wall Street Journal did not need another consumer goods company to replace General Motors. They chose Cisco Systems because they felt its products were relevant to economic and cultural adjustment to the digital age, much as automobiles influenced economic and social changes in the 20th century.

Posted 6/18/09 1:30pm ET in Fidelity Investments, Fundranker