Average Yield Of SIFs In Four Years: 240%

04.04.2013 By Bogdan Neagu

The shares of the five regional investment funds (SIF) have generated a 240% average yield in the last four years, considering both the increase in shares’ price and the dividends paid.

However, considering the asset value, shareholders actually gained just 56% (net asset increase plus dividends paid). The SIFs have posted 2.26 billion lei (EUR510 million) in net profit over the last four years, though mostly from asset sales.

The last four-year yields put the five SIFs among the most profitable investments on the stock market. However, the shareholders want their bosses replaced and the general meetings this month will probably end with significant changes in the boards of directors.

With a 337% total yield, which includes the rise in the share price from April 1, 2009 through April 1, 2013, the gross dividends paid in the last four years, SIF Moldova (SIF2.RO) ranks second among the profit makers on the stock market, behind Compa Sibiu (CMP.RO), with 428% growth.

SIF Oltenia (SIF5.RO), with a yield of 277% and SIF Transilvania (SIF3.RO), 227%, made it into the top five leaving OMV Petrom (SNP.RO) behind.

It should be noted, though, that the trend of the SIF share prices does not necessarily reflect the results of their managers over the analyzed period. First of all, the SIFs started off very low four years ago.

The Bucharest Stock Exchange reached the crisis low in February 2009 and all stocks prices tanked, too. They later picked up and the SIFs, which are among the most liquid, attracted the interest of many investors, hence the growth.

Second, another factor that influenced the performance of the SIFs was the raise of the stake cap from 1% to 5%, allowing investors to buy more. Since January 2012, a number of investors have bought significant stakes, raising their participations to 5%, but their purchases drove the price up.

The main contribution that the SIF management had was the higher and higher dividends paid in the last four years, which accounted for one third of the profit generated by SIFs (80% of 240%).

A more relevant measure of the performance of SIF managers is the trend of the asset value, which shows how much value they have actually created for shareholders in the last four years.

To get as realistic a picture as possible, one also has to add the amount of the payments made to shareholders as dividends to the asset increase. Doing so shows the average yield of the five SIFs is 55%, 33% from the net asset growth and 22% from dividends (both calculated against the assets on March 31, 2009).

In comparison, the overall index of the Bucharest Stock Exchange, BET-C rose 99% during the same period, and the average interest of a bank deposit stood at about 40%. Someone investing half of their money on the stock market and half in a bank deposit would have got a 70% yield.

Looking at it this way, the SIF yields seem rather poor. However, there are number of factors pertaining to the structure of the SIF portfolios, focused on the financial sector, whose performance was below the market’s average (BRD has gone up 40% in the last four years) and the way the assets have been calculated so far, reflecting the average prices of stocks in their portfolios over several months instead of the current prices.

Still, many investors are unhappy with such growth and believe the SIFs have not been efficiently managed. SIF Banat-Crisana’s (SIF1.RO) assets (plus dividends paid) increased by 92%, SIF Oltenia’s by 83% and SIF Moldova’s by 69%. On the other hand, SIF Transilvania and SIF Muntenia (SIF4.RO) saw growth of 32% and 23%, respectively, which means their investors would have gained more if these two had kept all their money in the bank.

The higher and higher dividends paid over the last four years stopped asset growth and even caused decline in some SIFs, because they were left without any money for new investments. SIF Muntenia and SIF Transilvania distributed the most of their profit, over 70%.

Still, the wide gaps between SIFs come from their investments. In the last few years, SIF Transilvania and SIF Muntenia have invested in companies that are not listed. SIF Transilvania spent money on capital increases of its hotel companies, whose market value rose very slightly and SIF Muntenia invested in companies like Muntenia Medical Competences hospital and Avicola Bucuresti. Although those were investments in the real economy, the results were rather poor.

On the other hand, SIF Moldova, SIF Banat-Crisana and SIF Oltenia preferred to invest in listed shares, such as Fondul Proprietatea (FP.RO), Transelectrica (TEL.RO) and Bucharest Stock Exchange (BVB.RO). Some even invested abroad. Although it had yielded better results, not all shareholders liked this strategy.

Some say the SIFs should not invest preponderantly on the stock market, because that is what regular mutual funds can do, but should become involved in large projects, which regular funds cannot do to generate added value for the SIF shareholders.

SIF shareholders are divided into two camps now: one in favor of controlled liquidation, which has been happening with SIF Transilvania and SIF Muntenia in the last couple of years and one that prefers to reinvest more of the profits and wants the SIFs involved in big projects. One such example is SIF Banat-Crisana, which would like to take part at Romania’s postal company Posta Romana privatization.

It remains to be seen which of the two strategies gains more ground after the elections due in the next few weeks.

(English version by Loredana Fratila-Cristescu)

Share trend of the five SIFs, dividend yields, total yields and discounts (in the last four years)

Asset trend of the five SIFs, dividends paid in the last four years and shareholder profits                                                                 

Operational indicators of SIFs for 2009-2012 (revenue, revenue sources, investments and outflows as dividends)