ULTUMUS News

Could Romania Beat the S&P 500?

Written by Ultumus | Jun 3, 2024 1:42:48 PM

Higher dividend yields & lower market cap/GDP ratio

Over the past 5 years, the world’s most widely tracked index, tracked by the several of the largest ETFs, the S&P 500, has risen by 90%.  Over the same period, Romania’s BET index has risen by almost exactly 100%, from 8,580 on June 10, 2019 to 17,562 on June 10, 2024 – beating the US market by about 10% in local currency terms. In constant currency, they would be pretty much neck and neck, since the US Dollar has appreciated by about 10% against the Romanian Leu over this period. 

 

However, both of those figures ignore dividends. Including dividends averaging around 2% per year, the S&P 500 has made over 100% over the past five years, but the BET-TR (Total Return) index has done far better, rising from 13,000 to 37,000, up 284%, or almost tripling. Romanian equity dividend yields have been in high single digits for much of this period, and reinvesting these into a rising equity market adds to the compounding effect. 

 

InterCapital Asset Management, Croatia’s largest independent asset manager, has just listed an ETF on the Bucharest exchange, tracking the BET – TRN index, which reinvests dividends. The ticker is ICBETNETF. It is already listed on the Zagreb exchange, in Croatia, and the Ljubljana exchange, in Slovenia. 

 

It tracks 20 Romanian large caps such as Banca Transilvania, Hidroelectrica, OMV Petrom, and DIGI Communications. OMV Petrom has a 12% plus dividend yield and Hidroelectrica yields over 10% while Banca Transilvania pays out 4% and Digi just under 2%. 


The product has a management fee of 0.60% which is a bit above average for a tracker, but perhaps not for a niche product tracking a less widely followed equity market. 

 

Romania’s total equity market size of USD 70 billion is tiny – nearly 99.9% smaller than the US at USD 50 trillion (or thousand billion), so the largest institutional investors would not be able to deploy enough capital into Romania to move the needle of their performance. But this ETF has a starting price of 70 Romanian Leu, or about 15 US dollars, so should be easily accessible to the smallest investors. 

 

Interestingly, Romania’s equity market is about 25% of its GDP of c. USD 300 billion, whereas the US equity market is roughly double the country’s GDP around USD 27 trillion. The market cap to GDP indicator, dubbed the Buffett indicator, is a long term measure of value that some investors do pay attention to, and on this basis the US market is 8 times more expensive than Romania. It is possible that Romanian equity investors can look forward to many more years of outperformance.