The Bucharest Exchange Trading index (BET or BET-20) was the first index developed by Bucharest Stock Exchange. In this guide we look at methods and investment products that track and provide exposure to BET index, the reference for Romanian capital markets.
Even if investing in stock markets sometimes leads our thoughts to the most popular global markets, the Romanian stock market is not something to be overlooked.
Frontier market investments can have a low correlation to developed markets and thus can provide additional diversification to an investment portfolio. In portfolio management, most of the time, investors are trying to balance the strengths and the weaknesses, the opportunities and the risks of certain choices.
BET Index - Key Takeaways
- The BET index is used as an important benchmark in measuring the returns of the most liquid stocks traded on the Bucharest Stock Exchange.
- Index investing has become increasingly popular over the years, with this passive strategy outperforming more active investment over time, especially net of fees and taxes.
- Exposure on the BET index can only be accomplished indirectly, either through self-indexing, index derivatives, or index funds & ETFs like the iShares MSCI Frontier and Select EM ETF (FM).
What is the BET Index?
BET (Bucharest Exchange Trading), is the main index of the Romanian stock market and reflects the evolution of the most traded companies on the Main Market of the BVB, excluding financial investment companies (SIFs). It is a free-float market capitalization-weighted index, with the maximum weight of its components of 20%.
The number of companies included in the BET index varies between 10 and 20, according to the BVB website. To be included in the basket of the BET index are selected in descending order companies with the highest liquidity ratio. The liquidity ratio is calculated half-yearly (March and September), by the Index Committee and is the basic source for drawing up the list of companies eligible to be included in the Index basket.
There are also other relevant considerations that can be considered by the BVB Indices Committee, as appropriate, such as: the company's financial situation, legal elements, company transparency, the interest of market participants etc.
Currently, the BET index consists of the following 20 private or state-owned companies:
- Fondul Proprietatea (Mutual Fund) - 20.51%
- Banca Transilvania (Banking) - 19,52%
- OMV Petrom SA (Oil & Gas) - 15,42%
- SNGN Romgaz (Natural Gas) - 10,52%
- BRD Groupe Societe Generale SA (Banking) - 7,75%
- Nuclearelectrica (Electricity) - 5,53%
- MedLife SA (Healthcare Services) - 3,18%
- Digi Communications NV (Telecommunications) - 3,11%
- SNTGN Transgaz SA (Natural Gas) - 2,81%
- Societatea Energetica Electrica (Electricity) - 2,39%
- One United Properties (Real Estate) - 2,18%
- Teraplast SA (Chemical industry and construction materials) - 2,00%
- CNTEE Transelectrica (Electricity) - 1,11%
- TTS (Transport Cargo) - 0,80%
- Aquila Part Prod (Distribution) - 0,72%
- Alro (Aluminium production) - 0,61%
- Purcari Wineries (Wine production) - 0,59%
- Conpet SA (Pipeline transportation) - 0,48%
- Bursa de Valori Bucuresti (Stock Exchange) - 0,45%
- Sphera Franchise Group (Food) - 0,42%
The Bucharest Stock Exchange (BVB) calculates 8 indices, all using the market capitalization weighting method. Six of these are price indices and two total return indices have been developed as versions of the most representative market indices, BET and BET-XT.
- BET-FI - Introduced in 2000 as a sector-specific index for investment funds.
- BET Plus - launched in 2014 and includes more companies (37 compared to the original 10 launched in 1997).
- BET-TR - the first full return index introduced by the BVB, based on the structure of the market benchmark, BET. The BET-TR index reflects both the price performance of its component companies and the dividends they pay.
- BET-XT - reflects the share price performance of the 25 most traded companies on the BVB's regulated market, including financial investment companies (SIFs).
- BET-XT-TR - the full return version of the BET-XT index, which includes the 25 most traded Romanian companies listed on the BVB. The BET-XT-TR index reflects both the price performance of the component companies and the dividends they pay.
- BET-BK - constructed and launched for use as a benchmark index by fund managers and other institutional investors.
- BET-NG - introduced in 2008 to track transactions with shares of energy companies.
How to invest in the BET Index?
An index like BET is a hypothetical basket of stocks, so it cannot be invested in directly. But there are investment products that track indexes available through product providers and fund issuers or instruments you can leverage to replicate an index investment.
The truth is that there are both advantages and disadvantages to each, and these could help you decide which option is right for you, considering your investment strategy, risk tolerance, investment goals, and time horizon.
1. Direct investments in top BET Index companies' stocks
When you buy shares of stock in individual businesses, you become a part owner of the company. That means you get a share of the profits or losses, based on how well the company does.
Individual stocks can have good performance over time, but they may be volatile in the short term, fluctuating massively, which comes along with risks. It’s not unusual for high-flying stocks to decline 20-30% (or more) each year on their way to long-term outperformance. On the other hand, a strong stock might go up 50% or more in a single year, especially if the overall industry or sector is hot.
In general, in the short run, stocks may rise and fall for many reasons, and market sentiment often determines how a stock performs day to day. In the long term, however, a stock more closely follows the company’s growth. As the company expands its profits, usually, the stock will tend to rise as well.
For example, BVB shares had the highest total return from BET Index last year, at 42.2%, a performance that is primarily due to the 38.4% increase in the share price, while at the other end of the spectrum, TeraPlast (TRP), Purcari Wineries (WINE) and Aquila (AQ) had the biggest share price falls in the BET index last year.
If you are looking for a full replication of BET index your portfolio should hold all the stocks in the index and replicate as closely as possible the weighting of each financial instrument in the index. Additionally, such a strategy requires adjustments every time an index adds or removes a stock or every time the weight of a stock in the index increases or decreases significantly. Such monitoring and subsequent rebalancing requires a reasonable time allocation and a significant capital requirement.
This is one of the reasons behind the growing popularity among investors of index funds and exchange-traded funds (ETFs) as more attractive and affordable investment options.
2. Investing in ETFs tracking the BET Index
An ETF might be a higher-priority investment if you are an investor, seeking diversification and if you set objectives for the long-term.
When you invest in ETFs, you invest in many securities rather than just one company. An ETF can be made up of hundreds or even thousands of stocks (or other assets), allowing you to diversify your portfolio with a single investment.
Sometimes, investors may wish to quickly gain portfolio exposure to specific sectors, styles, industries, or countries but do not have expertise in those areas. Given the wide variety of sector, style, industry, and country categories available, ETF shares may be able to provide an investor easy exposure to a specific desired market segment.
If you want an ETF with top BVB companies' representation, you might consider iShares MSCI Frontier and Select EM ETF (FM). BlackRock's iShares is the largest provider of ETFs as calculated by assets under management.
With net assets of almost $1B, The iShares MSCI Frontier and Select EM ETF (FM) is the largest exchange-traded-fund (ETF) that seeks to track the investment results of an index composed primarily of frontier market equities along with select emerging market equities.
Why iShares MSCI Frontier and Select EM ETF:
- Diversification and exposure to frontier and emerging market stocks, including 7 of the most prominent BET index components: TLV, BRD, SNP, SGN, EL, TRP
- One-click access to a virtually untapped investment portfolio with a significant BET index exposure and correlation.
- Trade in any direction and use leverage to hedge your BVB stock portfolio.
3. Investments in the BET Index via futures contracts
Indices futures contracts are for speculating on the price movements of various stock indices, such as the Dow Jones, Nasdaq 100 or BET Index. Like commodities futures, traders can choose whether to speculate on price movements or hedge with multiple positions to manage risk.
For example, if a trader bought a futures contract and the price of the index rose and was trading above the original contract price at expiration, then they would have a profit. Alternatively, if the index falls, he would have a loss.
The expiration of index futures contracts doesn’t require the delivery of a physical asset. Instead, it is settled with cash. The amount of cash is dependent on the difference between the entry and exit prices of the contract.
BET Index derivatives and futures contracts for the most traded BVB shares should come to the stock exchange during Q4 2023, according to the BVB representatives.
For the BET index the required margins will be even less than 10%, while for other products the margins would be between 10% and 30-40%.
BET Index Predictions for 2023 and Beyond
The BET increased 565 points, which means around 4.85% since the beginning of 2023. But what are experts’ predictions for the next months and years? Which sector is expected to perform better?
BET index is expected to trade at 14.029 points by the end of this quarter, according to Trading Economics global macro models and analysts' expectations. Looking forward, the agency estimates it to trade at 13.143 in 12 months' time.
Simplywall.st analysts are most optimistic about the Materials sector, expecting annual earnings growth of 102% over the next 5 years. This is roughly in line with its past earnings growth rate. In contrast, the Telecom sector is expected to see its earnings decline by 44% per year over the next few years.
To find out more about the BET Index outlook, visit our research and analysis of the top 10 components:
BET Index Trading Hours
The Bucharest Stock Exchange allows daily trading from Monday to Friday. Trading hours differ depending on the markets and the type of financial instruments. The regulated market (REGS) has a Pre-Opening session from 9:30 to 9:45 AM (Eastern European Time), a regular trading session is from 9:45 to 17:55, Pre-Closing is from 17:55 to 18:00, from 18:00 to 18:10 is the Closing Trading session and the market is closed at 18:10. At Bucharest Stock Exchange there is no trading on Saturdays and Sundays, as well as on national holidays in Romania, announced in advance by BVB.
BET Index History
According to BVB, the BET index began its history 26 years ago from a level of 1,000 points, with 10 companies and a capitalization of 443 million lei. Today, the main index stands at 12.176 points, includes 20 companies with an index capitalization of 50.7 billion RON (~EUR 10.2 billion).
Historically, one year after its launch, the BET was to hit an all-time low: on 24 September 1998, the index reached a low of 281 points.
Almost 10 years after its launch, the Romanian stock market was standing at 10,813. Subsequently, events on the international financial scene in 2008 led to steep declines in all the world's capital markets, and the lowest level after this period was reached in Romania on 25 February 2009, when the BET index had a level of 1,887 points. On 18 September 2017, the BET closed the session close to the 8,000-point level, an increase of 324% since 2009.
BET reached its all-time high of 13,921 points on 17 January 2022.
The longest-standing issuer in BET's history is Banca Transilvania and it has been in the index for 23 years. BRD - Groupe Societe Generale has been in BET for 22 years and OMV Petrom for 21 years.
Conclusion
For some, their belief in investing in individual stocks is so deep, it's almost like a religion. They will tell anyone who is willing to listen to buy stocks they have researched thoroughly and hand-picked. Others sleep better at night knowing that their portfolio is well diversified through exchange-traded funds (ETFs). There are also investors whose risk appetite is higher. Many of them will choose more speculative financial instruments, such as future contracts, or stock trading via CFDs.
Investments in the BET Index can provide additional diversification to an equity portfolio, but might come along with risks, like any kind of investment, especially during economic and geopolitical turbulent periods.
Investors and speculators have the possibility to choose their own investment method, considering personal circumstances such as risk tolerance, investment objectives, or horizon.
If you are looking to invest in the BET Index, make sure you choose the way that best fits you. The iShares MSCI Frontier and Select EM ETF (FM) is one accessible and cost-effective option to gain some exposure on BET index.
Free resources
Before you start investing in the stock indices for your portfolio, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.