the Dow of Apple

(Reuters) - Apple Inc (AAPL.O), the largest U.S. company by market value, will join the storied Dow Jones industrial average .DJI, replacing AT&T Inc (T.N), in a change that reflects the dominant position of iPhone maker in the U.S. economy and society.

The decision to nudge aside AT&T, which has been part of the Dow for the better part of a century, is a recognition of the way in which communications and technology have evolved over the last several decades.

The action, by S&P Dow Jones Indices, had been widely expected since Apple split its shares seven-for-one in June 2014.

The Dow industrials is the oldest U.S. stock average, first been published in 1896. Its compact size - just 30 names - and its mission to reflect the U.S. economy mean it has a familiarity for retail investors that other indexes that cover a greater portion of the market's value do not.

Even though professional managers generally benchmark against the S&P 500, additions and removals from the Dow are still seen as a big event. It was last altered in September 2013 when Goldman Sachs Group Inc (GS.N), Visa Inc (V.N) and Nike Inc (NKE.N) were added.

AT&T was added in 1916, the year after the first-ever transcontinental telephone call. It was removed in 2004. After SBC Communications renamed itself AT&T following a 2005 merger, it was reinstated.

"It was a new way of life: telephones, back then 100 years ago, these talking machines," said Howard Silverblatt, chief index analyst at S&P Dow Jones Indices.

In a twist of fate, Apple owes some of its success to its partnership with AT&T over the iPhone, the device that propelled Apple's dominance. The iPhone first hit the market in 2007 with AT&T as its exclusive carrier, a deal that continued for more than three years.

Kevin Landis, chief investment officer of Firsthand Capital Management, a Silicon Valley-based technology-investing specialist with $300 million in assets under management, said he hopes that this is not a sign that Apple is past its prime.

“The Dow Jones is such a backwards-looking list, I cringed when Intel (INTC.O) and Microsoft (MSFT.O) were added," Landis said. "I'm cringing today. Let's hope Apple can defy the forces of history."

Intel and Microsoft joined the average in November 1999, and their performance was weak for years following.

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Another stat/factoid being tossed about for your consideration: Companies added to the Dow outperform the S&P 500 by 3% in the 30 days after the announcement, according to Bernstein Research.

But that outperformance tends to be short-lived. There is a “clear pattern” of good performance leading up to the addition then “bad performance following,” Jason Goepfert, president of Sundial Capital Research, tells Marketwatch.

Goepfert examined the 20 days before and after an addition but recent history suggests the index tends to add stocks when they're peaking, and occasionally before big falls. Notable examples include Intel and Microsoft, added to the Dow in November 1999, and Bank of America, which was added in February 2008. On the flip side, stocks often perform well after being booted from the index, with Hewlett-Packard being the most obvious recent example. (The stock is up about 55% since being dropped from the Dow in September 2013.)

This is by no means a recommendation or a forecast but I can assure you some professional investors are right now looking into a paired trade: Short Apple-Long AT&T. (Update: In 32 of 50 Dow changes from 1928 to 2005, the deleted Dow stock outperformed the added name, and the portfolio of stocks removed gained 19% over next 250 trading days vs. a 3% gain for stocks added, according to this 2005 academic study by economists at Pomona College.)