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 The decision to nudge aside AT&T, which has been part of the Dow for
the better part of a century, is a recognition of how communications
and technology have evolved. It's also a marker of Apple's
transformation, from a struggling company with a small, fervent
following two decades ago, into the nation's predominant consumer
tech company.
"This is a sign of the times, and it might get everyone to look at
the Dow more than they have been," said Richard Sichel, who oversees
$2 billion as chief investment officer at Philadelphia Trust Co. "It
would be difficult to pick any 30 companies that would cover the
entire economy, especially compared with the S&P 500, but it does
give the Dow more credibility."
The action, by S&P Dow Jones Indices, had been widely expected since
Apple split its shares seven-for-one in June of last year.
AT&T declined to comment on its removal from the average, of which
it has been a member for most of the last 100 years. The stock was
added to the Dow in 1916, the year after the first-ever
transcontinental telephone call. It was removed in 2004, but after
SBC Communications renamed itself AT&T following a 2005 merger, it
was reinstated.
"It was a new way of life: telephones, back then 100 years ago,
these talking machines," said Howard Silverblatt, index analyst at
S&P Dow Jones Indices. "Back then, AT&T was it, end of story."
TWIST OF FATE
After Apple's stock split, many investors felt it was only a matter
of time before the company, whose high stock price had previously
made it unsuitable for the price-weighted index, would join it.
The Dow industrials is the oldest U.S. stock average, first
published in 1896. Its compact size - just 30 names - and its
mission to reflect the U.S. economy means that many retail investors
are more familiar with it than other indexes covering a broader
cross-section of the market.
Even though professional managers generally benchmark against the
S&P 500, additions and removals from the Dow are still a big event
on Wall Street. It was last altered in September 2013 when Goldman
Sachs Group Inc, Visa Inc and Nike Inc were added.
Apple did not respond to requests for comment. The company has a
market capitalization of $737 billion, making it twice the size of
the second-largest Dow component, Exxon Mobil Corp.
Shares of Apple rose 0.15 percent to $126.60 on Friday, while those
of AT&T fell 1.5 percent to $33.48.
In a twist of fate, Apple owes some of its success to its
partnership with AT&T over the iPhone, the device that propelled
Apple's dominance. The iPhone first hit the market in 2007 with AT&T
as its exclusive carrier, a deal that continued for more than three
years.
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Since the iPhone's introduction, Apple's annual revenue has risen
more than sevenfold, from $24.6 billion in 2007 to $182.8 billion
most recently. AT&T saw 11 percent revenue growth over the same
period to $132.4 billion in 2014.
"There’s irony in that they are replacing AT&T, which helped them
lift off to begin with,” said Neil Azous, founder of Stamford,
Connecticut-based advisory firm Rareview Macro.
Despite Apple's size, as of Thursday's close it would only have a
4.66 percent weighting in the Dow because of its price, the index
company said. Apple will join the average after the close of trading
on March 18.
Most of the assets indexed to the Dow industrials do so through the
S&P Dow Jones Industrials exchange-traded fund, commonly known as
the "Dow Diamonds." It had about $12.5 billion in assets as of
Thursday. By comparison, more than $1.9 trillion in assets track the
S&P, including mutual funds and ETFs.
Kevin Landis, chief investment officer of Firsthand Capital
Management, a Silicon Valley-based technology-investing specialist
with $300 million in assets under management, said he hopes that
this is not a sign that Apple is past its prime.
“The Dow Jones is such a backwards-looking list, I cringed when
Intel and Microsoft were added," Landis said. "I'm cringing today.
Let's hope Apple can defy the forces of history."
Intel and Microsoft joined the average in November 1999, and their
performance was weak for years following.
(Reporting by David Gaffen; additional reporting by Jonathan Spicer,
Jessica Toonkel and Ryan Vlastelica; Editing by Dan Burns,
Bernadette Baum, Steve Orlofsky and Christian Plumb)
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