Apple the power of the index (Dow Jones curse)

It seems Apple's inclusion to the Dow Jones average marked a short term top in the stock. When Apple replaced AT&T on March 19th 2015 its share price was $127.50. After a near 20x fold run it was decided to add Apple to the index. AT&T which it replaced is up 13.6% since the start of the year (it was a member from 1916). Historically getting kicked out of the Dow has typically been good for a stock.

At the time some argued for Apple not to join the index as Dow companies have tended to be slower growing and some would say complacent. Apple's latest earnings result showed slower growth weighing on the market. Other technology companies have been mixed Microsoft and Google disappointed but Amazon and Facebook impressed. The problem is with market/price weighting making Apple the largest weight for most indexes. As the price/market value of a stock goes up the stocks receive a higher weighting. This type of behavior is the opposite of what we should be doing. Indexes based on fundamentals like dividends and earnings otherwise known as smart beta indexes make much more sense. We are seeing this now with Apple.

Decisive has no position in Apple (AAPL). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.