Coca-Cola Europacific Partners (LSE:CCEP) is set to join the FTSE 100 in March 2025. With a £37bn market-cap, it’s set to come in at number 25 – between Barclays and BAE Systems.
When it joins the index, the share price might well get a boost. But while that’s been catching the attention of some investors, I’m staying well out of the way.
A big deal
When companies join the FTSE 100, there’s usually a significant amount of money chasing after them. A lot of this comes from index funds.
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For example, Games Workshop‘s set to join the index later on 23 December. On that day, funds that track the FTSE 100 will buy a portion of their portfolio in Games Workshop shares.
Importantly, they won’t care what price it’s trading at. As long as they buy the right amount of shares for the size of their fund, they’re doing their job – they’re matching the index.
That means there’s likely to be an unusually high level of buying activity when the firm joins the FTSE 100. As well as the usual buying, there will be demand from index-tracking funds.
Investors might therefore expect the stock to get a boost when this happens. But in terms of market-cap, Coca-Cola Europacific Partners is around eight times the size of Games Workshop.
If things stay as they are, a lot more money’s going to be chasing after the Coca-Cola bottling firm when its inclusion date comes. And investors might think about buying now to get ahead.
Stay away
Despite the attractiveness of this idea, there are two reasons I’m staying out of the way. The first is everyone already knows about this and the second is I worry about what happens next.
The inclusion of Coca-Cola Europacific Partners in the FTSE 100’s already well-known. So investors have had plenty of time to buy shares in advance, offsetting the effect next March. Moreover, the balance between buyers and sellers should revert back to normal once the inclusion takes place. So I expect any unusual change in the share price to be very short term.
From a long-term perspective, I think the stock’s actually quite interesting. The Coca-Cola company invests heavily in marketing behind its brands and the franchisee stands to benefit.
The risk of conflict between the bottling subsidiary and the parent company is also limited. The largest shareholder of Coca-Cola Europacific Partners is the central business.
Anti-obesity drugs are arguably a bigger threat and one that investors should think seriously about. But I think they have plenty of time to consider this before March.
Maybe later
Warren Buffett points out that buying shares when they first launch on the stock market is often a bad idea. Unusual excitement and demand can often push the price up.
I think it’s the same when a stock joins a major index. Coca-Cola Europacific Partners might be a stock for me one day, but I’m staying out of the way while it prepares for promotion.
I suspect an anticipated surge in buying is leading to investors trying to get ahead of the game. As a long-term investor, getting in the middle of that looks like a needless risk to me.
