This change in the indices composition underscores the growing attractiveness of the Romanian capital market, where increased IPO activity has heightened competitiveness among companies to meet the Bucharest Stock Exchange's criteria for "blue chip" status - solid liquidity and significant investible market capitalization.

So far, the inclusion announcement has impacted the four issuers affected by the indices revision. From September 6th to October 25th, 2024, the stocks showed divergent performance: Antibiotice gained 6.2% and Premier Energy 1.8%, while Conpet, and BVB recorded declines of 7.9%, and 14.8%, respectively. The changes officially took effect on September 23rd, 2024. Since the inclusion, Antibiotice saw a slight decline of 1.3%, while Premier Energy dropped by 6.1%. In contrast, Conpet posted gains of 5.8% and BVB stayed flat. This varied stock performance over this relatively short period of time suggests that while BET index inclusion initially drives capital inflows or outflows, the market's subsequent adjustments are more closely tied to each company's underlying fundamentals and investor expectations.

The contrasting performance underscores the market's sensitivity to shifts in index composition. Replacing well-established companies like Conpet and BVB with a growth-oriented firm like Premier Energy and a pharmaceutical company, Antibiotice, marks a significant evolution for the BET index. Over the last eight years, the number of BET constituents expanded from 10 in 2016 to 20, reaching this milestone in March 2022, following the addition of Aquila which was the 20th company to be included in the BET. As the market adjusts to these changes, volatility is expected as funds tracking the index realign their holdings.

Therefore, the evolution of these four stocks should be viewed in the broader context of the past year. Since its IPO in May 2024, Premier Energy share price increased by 2.9%, and so far in 2024, Antibiotice has surged by 122.2%, indicating strong market sentiment toward the stock. On the other hand, Conpet declined year-to-date 5.6%, while the market operator, Bucharest Stock Exchange's share price decreased 17.8%. This could indicate the market's preference for growth stocks and reduced appetite for traditional dividend-focused stocks amid changing market dynamics.

Looking forward – how will this change impact the BET-TRN investment fundamentals? Antibiotice, with a P/E ratio of 22.5 and an EV/EBITDA of 16.0, stands out for its higher valuations, suggesting investor expectations of future financial performance improvement. Premier Energy, with a P/E ratio of 10.8 and an EV/EBITDA of 14.9, reflects a different value proposition. The dividend yields offer additional insight: Antibiotice's 2024 dividend yield was 2.7%, while Premier Energy, as a recent listing, has not yet distributed dividends, but has committed in its IPO prospectus to doing so. Conpet, on the other hand, offers a high dividend yield of 9.1%, indicative of a distinct strategy and risk-reward balance. BVB's 2024 yield aligns with that of Antibiotice, at 2.7%.

All in all, it is clear that Conpet was among the highest dividend-paying stocks, and with Premier Energy likely focusing on significant investments rather than matching Conpet's high yields, there could be a slight adjustment in the overall dividend yields offered by the two new entrants compared to the previous constituents. However, in the broader context of the BET-TRN index, the adjustment in the overall dividend yield is unlikely to be drastic, as this shift involves only two companies out of 20, balancing yield expectations with prospects for capital appreciation.

From a broader perspective, the dynamics of dividend-paying stocks continue to play a crucial role in the region. Reinvested dividends have been a major driver of total returns, especially in the Romanian market, where they have significantly outpaced simple price returns since 2014. The return analysis of the evolution of the index in the last 10 years shows that 146% of return was generated by the price appreciation of the BET-TRN constituents, and another 239% from the reinvested dividends. This means that reinvested dividends beat the price return alone, and further testifies to the importance of dividends for the Romanian capital market. It adds another important layer to making investment decisions – always look at total returns, as returns might be significantly different. So far in 2024, BET-TRN index, as reflected by InterCapital Asset Management's ETF tradeable on the Bucharest Stock Exchange, registered a 12.5% increase in the price, while an additional 7% increase was generated by the reinvested dividends.

In the context of dividend yields over the past decade, 2024 ranks as the fourth highest, currently at 7%, calculated in euro. Excluding the exceptional dividend yield from 2023 of 23%, generated by the one-off dividend payment of Fondul Proprietatea following the IPO of Hidroelectrica, the highest yield occurred in 2019 at 11.4%, followed by 2018 at 9.2%, and 2022 at 8.4%. As the year progresses, there are at least two companies – Sphera Franchise Group and One United Properties – that will pay additional dividends, with yields anticipated to be in the range of 2.6% and 2%, respectively.

For investors considering investing on the Bucharest Stock Exchange, particularly for its attractive dividend yields, it is essential to recognize the variability of yields over the years. The 11-year average, including 2024 YTD, stands at an attractive 6.8%. Even with the mixed financial results registered so far in 2024 by companies included in the BET-TRN index, at InterCapital Asset Management, we expect dividend levels to remain stable in 2025, even with the recent change that removed the high-dividend stock, Conpet from the index. This shift highlights the importance of both growth opportunities and consistent dividend payouts, especially since the vast majority of the index constituents continue to paying out an important portion of their earnings,  providing investors with attractive dividend yields.