Dow average dumps Kraft Foods for UnitedHealth

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NEW YORK — The Dow Jones industrial average is dumping Cool Whip for copays.

The Dow, perhaps the most widely known barometer of the U.S. stock market, announced Friday that it would boot Kraft Foods to make room for the UnitedHealth Group insurance company.

The change takes effect Sept. 24. S&P Dow Jones Indices, which manages the average, said it was dropping Kraft because it is about to become a much smaller company after spinning off its North American grocery business.

The shuffle will not affect the level of the Dow, which closed Thursday above 13,500 and at a four-year high. The formula used to calculate the average is recalibrated every time a company is added or dropped.

Kraft, which also makes Cheez Whiz and the familiar blue-box macaroni and cheese, had a short shelf life on the Dow. It was added during the financial crisis in September 2008, replacing crippled insurer American International Group.

UnitedHealth Group was added because of health care’s growing importance in the U.S. economy, said David Blitzer, the chairman of the index committee. The Dow included drugmakers Pfizer and Merck but no companies focused on health insurance.

The Dow is made up of 30 stocks. A small committee, including the managing editor of The Wall Street Journal, which is owned by Dow Jones, decides which companies are included.

The committee tries to choose companies that can remain on the index for a long time. For a 17-year stretch between 1939 and 1956, the makeup of the Dow didn’t change.

The last change was in June 2009, when a bankrupt General Motors and a hobbled Citigroup were kicked off. They were replaced by Cisco Systems, which makes computer networking equipment, and Travelers Companies, the insurance provider.

Some have been pushing for the Dow to add red-hot technology stocks such as Google or Apple. Blitzer told CNBC the committee had “looked seriously at half a dozen stocks,” but didn’t give details.

On a conference call Friday morning, he told reporters that the stock prices of Google or Apple would likely distort the index because they would carry so much weight. Both are trading around $700 a share.

Besides, Blitzer said, technology companies are already well-represented on the Dow: “I don’t see Intel, IBM and Hewlett-Packard as old and decrepit by any means,” he said.

In an interview in April, John Prestbo, then of Dow Jones Indexes, said he always called companies to give them a heads-up if they were about to be kicked off. For the additions, the news is a surprise.

“They find out about it on the wire,” he said, “like everyone else.”


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