Just like a major league general manager engineering late-season trades to fortify his team's status as a pennant contender, the guardians of major market indexes frequently shuffle their lineup cards to offer a basket of stocks that is more representative of American capitalism.
Friday morning, once-teetering General Motors replaced H.J. Heinz in the Standard & Poor's 500 index in recognition of the $28 billion sale of the global food giant to Berkshire Hathaway and 3G Capital. Heinz's only connection to the index will be through Berkshire Hathaway, which was added to the S&P 500 in 2010 when Berkshire's Warren Buffett placed a bet on railroad stocks by acquiring index member Burlington Northern Santa Fe.
Another S&P 500 stock suffered a similar fate when it was acquired by the principals of 3G, a New York private equity fund bankrolled by wealthy Brazilians led by Jorge Paulo Lemann. When Mr. Lemann and his associates engineered the $52 billion buyout of Anheuser-Busch in 2008, the King of Beers was ousted from the index and replaced by Stericycle, which manages waste generated by hospitals, blood banks and pharmaceutical companies.
Changes to the S&P 500 and the Dow Jones industrials reflect the rise and fall of corporate fortunes. The indexes are intended to be a gauge of the market's health. Mutual fund houses compile portfolios based on these and other indexes as an easy, low-cost way for investors to gain exposure to the broad market. Critics say index investors are forced to buy the bad as well as the good.
That's one of the reasons the composition of the indexes changes regularly. Mergers and acquisitions are another.
The S&P 500's newest member was a longtime member of the Dow Jones industrials. But General Motors was removed from that 30-stock index in June 2009. That was about the time the federal government exchanged a portion of the $52 billion bailout loan it gave to the bankrupt automaker a year earlier for a controlling stake in GM. The automaker's fortunes have improved considerably since then, with the shares up 21 percent this year.
GM's addition to the S&P 500 could give the stock another boost. That's because investment managers whose funds attempt to mirror the performance of the S&P 500 index will have to buy GM shares.
The U.S. Treasury Department and the United Auto Workers will help satisfy that increased demand. Treasury announced last week it will sell another 30 million of the GM shares it received in exchange for rescuing the troubled automaker. A medical trust fund that benefits retired union autoworkers will piggyback on Treasury's offering, selling 20 million of the GM shares it owns.
Federated Investors, the Downtown investment management firm, is another Pittsburgh company recently culled from the S&P 500. Federated became part of the index in 2003, but was removed in December because its $2.2 billion market cap made "it more representative of the mid-cap market space," S&P said.
It was replaced by AbbVie, a biopharmaceutical research company spun out of health care company Abbott in January.
Pittsburgh is still well represented on the S&P 500, accounting for 1.4 percent of its members. The locally based companies included in the index are Allegheny Technologies, Consol Energy, EQT, Mylan, PNC Financial Services Group, PPG Industries and U.S. Steel.
Although many professional investors say the S&P 500 is a better measure of Wall Street's health, changes to the Dow industrials typically garner more attention.
Technically, Alcoa was the last Pittsburgh company to be included in the Dow. That changed in 2006 when the aluminum producer acknowledged its formal headquarters had moved to New York.
Alcoa, which maintains a large presence in Pittsburgh, has been a Dow industrial stock since 1959. But a Bloomberg piece last week questioned whether the beleaguered aluminum producer will be able to maintain that status.
Bloomberg cited the fact that Moody's Investors Service has downgraded Alcoa to junk bond status, making it only the second Dow industrials member to achieve that status over the last three decades. The other was General Motors, Heinz's replacement in the S&P 500. S&P and Fitch Ratings, two other rating agencies, still consider Alcoa debt investment grade, Bloomberg noted.
Excluding Alcoa, the last Pittsburgh-based Dow member was Westinghouse Electric, which -- along with Texaco, Bethlehem Steel and Woolworth -- was ousted in 1997 and replaced by Travelers Group, Hewlett-Packard, Johnson & Johnson and Wal-Mart Stores.
USX Corp. dropped out of the index in 1991 when the Pittsburgh company created different stocks that would track its interests in U.S. Steel and Marathon Oil.
Having one less Pittsburgh company in the S&P 500 no doubt will bruise the egos of some city fathers. But if the layoffs and cost cutting that took place when 3G took over Anheuser-Busch and Burger King are any indication, having one less local representative in a basket of 500 stocks should be the least of their concerns.
Len Boselovic: firstname.lastname@example.org or 412-263-1941.