What the Dow Jones Index Gained From Replacing 3 Tickers

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones (DJINDICES: ^DJI  ) index made a huge change in September. Three Dow tickers were shown the door to make room for three fresh names. With two months of market history in the books, the three former Dow Jones members have absolutely crushed their replacements. And yet, the Dow roared higher, thanks to the new tickers.

Here's how the three new Dow stocks have fared since taking their seats in the blue chip index:

GS Chart

GS data by YCharts

Of these three stocks, Nike (NYSE: NKE  ) looks like the obvious star performer. The athletic equipment designer's shares ran 15% higher in just two months, starting with a blowout earnings report just days after joining the Dow. That crucial jump came on a day where most of the Dow suffered from the budget battles in Congress, and Nike never looked back after separating from the pack. The 15% surge did indeed create a pile of fresh Dow points -- 66 of them, in fact.

But that's where the Dow's price-weighted nature throws us a serious curve ball. You see, Visa (NYSE: V  ) and Goldman Sachs (NYSE: GS  ) may not have posted mindblowing gains in this two-month span, but their triple-digit share prices magnified their effect on the Dow. Nike still towers over its fellow Dow Jones freshmen, but not as much as you might think.

Goldman's tiny 1.8% share-price rise still translated into 19 solid Dow points. Visa 's (NYSE: V  ) shares rose 4%, and this stock comes with the highest share price among all Dow Jones components. So that's 50 Dow points right there. Put Goldman and Visa together, and you get 70 fresh points. That's more than the 66 points that were produced by Nike's 15% surge and far-lower share price.

If you're a big fan of the new Dow roster, it's tough to say that you were wrong. These three new Dow stocks, with their much higher share prices, have leveraged their price-weighted muscle to add 136 points so far. That's more than twice as much as the 63 Dow points that their predecessors would have produced. Nike covered that much ground all alone, while Goldman paired up with Visa to achieve the same effect as a team.

If the Dow's intent was to produce higher scores, the strategy is off to a strong start. Making a Dow-style portfolio out of the three new stocks on September 23 would have returned 4.8% so far. That's a very healthy annualized run rate of 25%, but far behind the removed Dow tickers' 21% returns, which works out to a brutal 160% annualized return. And yet, the new tickers added far more to the Dow's final score than the old ones might have done.

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Related Tickers

9/26/2016 4:35 PM
^DJI $18094.83 Down -166.62 -0.91%
GS $161.48 Down -3.65 -2.21%
Goldman Sachs CAPS Rating: ***
NKE $54.40 Down -0.75 -1.36%
Nike CAPS Rating: *****
V $81.81 Down -0.73 -0.88%
Visa CAPS Rating: *****