So far in 2024, 9 out of 20 companies have outperformed the BET index in terms of returns. In terms of trading days, 5 out of 20 companies matched or exceeded the index more than 50% of the time, while 4 came very close to doing so. However, many companies have underperformed relative to the index.
Overall, the Romanian equity market has delivered solid returns in 2024. Three companies have achieved returns exceeding 50%, while 11 out of 20 BET constituents posted double-digit gains. Two companies recorded single-digit returns, and 8 reported losses, with 5 of those suffering double-digit declines.
YTD performance of BET constituents (2024 YTD, %)
Source: Bloomberg, InterCapital Research
Taking a closer look at individual performances, Digi has recorded a remarkable 55% return in 2024 YTD, followed by Sphera Franchise Group and Aquilla with 53%, MedLife at 49%, and Banca Transilvania and Transelectrica with 33%, respectively. On the downside, Transport Trade Services posted a 27% loss, Fondul Proprietatea saw a 26% decline, and One United Properties recorded a 22% loss.
While the reasons for these performances vary across companies and sectors, several broader factors have undoubtedly influenced these returns. Most notably, inflation, although still elevated at 5.1% YoY in August, has significantly decreased from its peaks in 2022 and 2023. This decline in inflation contributed to recent decisions by the ECB and the Romanian National Bank to lower key interest rates by 25 bps, to 3.5% and 6.5%, respectively. These rate cuts generally boost equity markets, which has supported the overall strong performance of the BET index, now up 14% YTD in 2024.
YTD performance of BET constituents as compared to the BET index (2024 YTD, p.p.)
Source: Bloomberg, InterCapital Research
Comparing the performance of individual companies to the BET, Digi outperformed the index by over 41 p.p., followed by Sphera Franchise Group and Aquilla with a 39 p.p. advantage, MedLife at 35 p.p., and Banca Transilvania and Transelectrica both exceeding the index by 19 p.p. On the other hand, Transport Trade Services significantly underperformed the index by 42 p.p., followed by Fondul Proprietatea at 40 p.p., and One United Properties lagging by more than 36 p.p.
This indicates that while individual stock picking can lead to significantly higher returns than the index, it also carries greater risk. Any market shocks are often absorbed more poorly by individual companies than by a diversified index, although the opposite can also hold true in periods of outperformance.
Beyond raw returns, it’s also essential to consider how companies fare against the index in terms of trading days where they outperform. While this metric may not provide definitive insights, when combined with overall returns, it helps us understand the dynamics at play in the Romanian market and how different sectors or stocks react to broader economic trends.
How often did BET constituents outperform the index (number of days in 2024 YTD, %)
Source: Bloomberg, InterCapital Research
As we can see, only a few individual companies consistently recorded more positive returns than the BET index on a day-to-day basis. Due to the weighting of these companies in the index, their gains or losses directly influence the overall index performance. When these companies experience gains, their contributions are proportionally reflected in the index, while their losses tend to have a muted impact.
In 2024 YTD, only 5 companies managed to either match or outperform the index in terms of trading days: Banca Transilvania outperformed the index 53% of the time, BRD followed closely with 52%, Electrica and Transgaz at 51%, and Aquilla exactly at 50%. In contrast, companies such as TeraPlast, Nuclearelectrica, and BVB outperformed the index on less than 40% of the days. This shows the uneven performance across the index’s components and highlights how select stocks can drive index returns, even if many companies underperform the index on a day-to-day basis.
Overall, this data illustrates that while individual stock investments can offer the potential for high returns, investing in an index – particularly one tracking blue-chip companies – provides distinct advantages. Chief among them is risk reduction, as an index inherently diversifies exposure across multiple companies, helping buffer against individual stocks’ volatility. Additionally, index investing often incurs lower transaction costs due to fewer trades, and when utilizing ETFs, investors also benefit from reduced management costs. Furthermore, many indices are available as total return ETFs, such as those tracking the CROBEX10 TR index (tickers: 7CRO on ZSE, ICCRO on LJSE), SBITOP TR index (tickers: 7SLO on ZSE, ICSLO on LJSE), and BET TR index (tickers: 7BET on ZSE, ICBET on LJSE, ICBETNETF on BVB). Total return ETFs automatically reinvest dividends, ranging from 3-4% in Croatia to 5-8% in Slovenia and Romania. This reinvestment allows investors to avoid paying dividend taxes, further enhancing returns.
