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I purchased some Medibank in the IPO and am sitting on a nice unrealised profit. I, like many it seems, was looking for a quick win, rather than a long-term hold. My main reason for buying was the fact that it was oversubscribed by institutions to the tune of 10 times! I figure all those fund managers that are benchmarked against the index, including ETF’s and passive managers, will be forced to buy to attain the relevant index weight their investment mandate demands.
I believe Medibank is yet to be added to the index, so my question is, can you confirm when the next index re-weighting takes place that will see Medibank added to the index? I’d imagine the active managers are slowly building their position, however, I expect some of the index funds/ETF’s will only gain a stake once the index is re-weighted (otherwise it won’t reflect the index), surely providing a spike in demand in the stock. Is this correct, and do you have any professional opinions (references to other big floats in history) on how this will pan out?
A: Thanks for the question.
Generally, a new IPO is added to the index by S&P within 6 months after listing provided it demonstrates that it has sufficient market liquidity. So, it is likely to be added in the March quarter or June quarter re-balancing. That said, while index managers will need to be index weight in Medibank, the stock in itself is not big enough to be a “core” stock and hence, many active or semi-active managers won’t touch it.
Medibank is not another Commonwealth Bank or Telstra.
Personally, I feel that Medibank is overpriced and that it will lag in a bull market – just as it has lagged since mid-January as the index has moved from 5300 to 5550. It is a defensive stock paying a pretty ordinary dividend yield.
I wouldn’t be counting on its addition to the index (which will be well telegraphed) being that significant a factor in demand for the stock.
