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The more it changes, the more it stays the same

The history of the Dow Jones Index started in 1884 with 11 stocks. Most of them were railway companies. Ever since, the face and structure of the index has changed, reflecting the structure of the economy.




What is the Dow Jones Index?
The predominant theme has been growth, with the companies that have the strongest growth tending to get the highest weightings in the index. After railways, it was mostly about industrials at the time that the Dow Jones Industrial Average was launched in 1896. Then commodity producers entered the scene, as well as healthcare and information technology. Looking back, however, investors have always tended to treat the index as ‘the Dow Jones’ – an institution like the Federal Reserve or the Liverpool F.C. Nothing could be further from reality.

The most recent reshufflings are a case in point
An era of more than 90 years is drawing to a close (see number of the week). Exxon Mobil gets kicked out of the index, together with Pfizer and Raytheon. They are replaced by younger contestants, such as, Amgen and Honeywell. In the German DAX index, the rebalancing has been less fortunate lately. Yet new business gets an increasing weight there too. And in Switzerland, a company like Partners Group is now catching up with the top league. Just barely 25 years after coming into existence, the company matches established players such as Credit Suisse in terms of market value.

To investors, this proves that the indices they follow on a daily basis are completely different beasts to what they were only 10, 15 or 20 years ago.

Christian Gattiker, Head of Research

The constant drift to the strongest growth franchises is also the beauty of passive investing. The investor community ensures that you are part of the strongest growth via the overall index weights. Following the strong performance of the large indices since late March 2020, however, we see some tactical opportunities in single names, as well as in small- and mid-cap stocks overall.