Dow and out

This week the Dow Jones index removed the last surviving member of its original cohort, General Electric, to better reflect the US economy, after a continuous 111 years membership. Without debating the rights and wrongs of this decision, it stands as a marker of how the western world has changed over the past century. The fact that the word ‘industrial’ is largely omitted in common discussion about the ‘Dow Jones Industrial Average’, hints at the greater diversity of the US economy. In the initial cohort of 12 stocks (from 1896), 10 included the word ‘American’, ‘US’ ‘National’ or the name of their home city; whereas today only one (American Express) is so named, showing a less geographic and more global focus.  In the UK, one of the key compositional trends in the FTSE 100 in recent years has been the increased representation of businesses that do not really operate in the UK (e.g. mining/minerals), hence the critique that the index no longer serves as a proxy for UK plc. Another has been M&A activity driving ever fewer businesses to greater heights. The top 10 (mostly tech) organisations in the US market-cap weighted S&P 100, now comprise almost 60% of the total index value and wield power much greater than the original Dow group.