Components of the Dow Jones Financial Index
The Dow Jones Financials Index is one of 10 major indexes that makes up the Dow Jones U.S. Index. The Dow Jones U.S. Index represents 95 percent of U.S. market capitalization and is watched by investors worldwide. The oldest index, the Dow Jones industrial average, first appeared in 1896. The Dow Jones indexes are a financial benchmark of the stock exchange in the United States.
Dow Jones Financials Index
The Dow Jones Financials Index was introduced Feb. 14, 2000. It was designed to measure the performance of the U.S. stocks that make up the financials sector. The index uses free-floating market capitalization to determine how much impact daily price changes in each company’s stock have on the index. The free-floating market capitalization computations do not include closely held stock shares. For example, if 20 percent of a company’s stock is closely held, the index float factor is 80 percent, and only 80 percent of that stock’s daily price change will affect the index.
The country’s five largest banks are in the Dow Jones Financials Index. JPMorgan Chase, Bank of America Corp., Citigroup Inc. and US Bancorp each have a float factor of 1. Wells Fargo & Co. has a float factor of 93 percent. These banks are included in the index because their banking divisions cover a wide range of financial services. This includes asset management, investment banking, treasury and securities division, credit card services and retail services. A weakness in one of a bank’s divisions will be reflected in the financials index almost immediately.
Berkshire Hathaway B is the only major insurance company in the financials index. This company has a float rating of 74 percent. Berkshire Hathaway B owns several insurance companies including Geico; General Re, which is a holding company for global reinsurance and related activities; Berkshire Reinsurance Group and Berkshire Primary Insurance Group. Berkshire Hathaway B’s insurance companies insure large, diverse groups and reflect the insurance industry as a whole.
The big four companies making up the financial-services group are Visa Inc., Goldman Sachs Group, American Express Co. and MasterCard Inc. A. The four companies together act as a barometer of credit usage among business clients and consumers. Goldman Sachs is the largest U.S. investment bank and the only one included in the financials index. This bank has a float ratio of 94 percent, American Express has an 87 percent float ratio, MasterCard an 86 percent float ratio and Visa has a 78 percent float ratio.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.