For investors holding index-based holdings like the SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA) or the Vanguard 500 Index Fund (NASDAQMUTFUND: VFINX), these big changes raise questions. The underlying strategy of passive, index investing is owning a broad piece of the market’s best names for the long haul and letting time do the work for you. Now, as was noted, 10% of your portfolio is slated to be replaced in one fell swoop and there’s nothing you can do to prevent it. The move may mean shedding some names you’d prefer to continue owning at this time. Maybe you liked the Dow’s mix as it was: heavy on Apple, pharmaceuticals, energy, and defense, but light on tech, biotech, and industrials. Maybe you’re not a fan of Amgen, which posted encouraging quarterly numbers in July, but otherwise hasn’t been a high-growth machine of late.
The point is, the Dow’s character will change. Perhaps it won’t change dramatically, but its sector makeup has changed in a way that could impact its performance going forward.