MO and HON leaving BAC and CVX coming in... Dow Jones - A new addition to an old Index By, Simon Maierhofer Feb 17,2008 Changes to the Dow Jones Industrial Average are rare and special. What are the tax consequences for DIA (Dow Diamonds) investors? For 111 years the Dow Jones Industrial Average has been one of the most widely recognized stock market barometers in the world. The benchmark began as a 12-stock index in May 1896. Appropriately, the Dow is labeled an Average not an Index. For the first time in four years, the Dow Jones Industrial Average is changing its stocks to beef up its weighting in financials and oil and to cut back on industrials. It's dropping Altria (Ticker: MO) and Honeywell International (Ticker: HON), replacing them with Bank of America (Ticker: BAC) and Chevron (Ticker: CVX) before the market opens on February 19th. Since January 1998, investors have been able to own all 30 components of the Dow via the Dow Diamonds ETF (Ticker: DIA). The tax-consequences for DIA investors, tied to the change in the index components, are expected to be minimal. The Dow Jones constituents are selected by editors of the Wall Street Journal. âThere are no pre-determined criteria for a stock to be added or deleted, though we intend that all components be established U.S. companies that are leaders in their industries," says John A. Prestbo, editor of Dow Jones Indexes. Altria, formerly Philip Morris Cos., has been in the industrial average since October 30, 1985. It adopted its current name in 2003. Last year it spun off Kraft Foods. This year the company announced to spin-off Philip Morris International, which will leave it as a purely domestic tobacco company. Honeywell is being dropped because it is the smallest of the industrials in terms of revenue and earnings. Additionally, the role of industrial companies relative to the overall stock market has been shrinking in recent years. Mr. Brauchli, managing editor of the Wall Street Journal further explains: "As usual when we make any change we review all the stocks. In doing so, we saw that the financials industry was under-represented â notwithstanding the current turbulence â and that the oil and gas industryâs growing importance to the world economy called for another representative to join ExxonMobil Corp." The increased allocation to financials and energy should tilt the index toward a higher correlation with the S&P 500, where those two sectors combine for approximately 30% of that index. Even though the Dow is the most widely known and quoted U.S.Benchmark, it does not provide a broad representation of the marketâs performance or overall state of the U.S. economy. The Exchange Traded Funds replicating the S&P 500 (Ticker: SPY), Russell 3000 (Ticker: IWV) and Wilshire 5000 (Ticker: TMW) offer much broader exposure.