The Dow Jones Says Farewell To Kraft

Well that was quick. In what looks to be the briefest stint in modern history (maybe even of all time?), Kraft Food’s (KFT) days as a member of the Dow Jones Industrial Average are coming to an end. A mere four years after usurping AIG’s (AIG) spot in the index, the food conglomerate will be replaced by the UnitedHealthcare Group (UNH) in order to reflect the growing importance of health care spending in the United States. The swap was also prompted by Kraft’s upcoming spinoff of its North American grocery business which will subsequently be named the Kraft Foods Group. Personally, I think the reasoning could be even simpler. I mean, would you want a company named Mondelez International (Kraft’s post-spin name) in your index?

The idea of these indices representing the market can be silly. The Inelegant Investor recently highlighted a ‘What-If’ scenario where Apple (AAPL) joined the DJIA a few years ago…lets just say things would look a bit different. Unfortunately, with the prevalence of index funds, membership changes can affect short term pricing. In fact, one of the ideas behind the ‘forced selling’ of spinoffs is that mutual funds and the like can be forced to dump shares which are outside their mandates. With this swap expected to take place at the start of trading on September 24, it will occur prior to the expected spin though, however, it might drive prices down beforehand. Will be an interesting situation to keep an eye on.

For additional information on the Kraft spinoff transaction, check out the rest of our coverage here.

Disclosure: Author holds no position in any stock mentioned.