A fresh new way to invest
EasyEquities is an online share t r ading pl at f or m ( www. easyequities.co.za) aimed at investors who don’t have large amounts of cash to invest at a time. The platform allows you to either buy whole shares or fractions of shares, depending on your budget.
The platform’s siren call is the fact that it gives anyone access to listed companies and ETFs. The kicker for those who find entering the world of equities
cumbersome and intimidating is that the platform mimics an online retail site, allowing users to buy shares using debit or credit cards or via EFT. While serious investors looking to diversify a portfolio will be drawn to the platform by its low brokerage fee and ease of use, the company has its sights firmly set on newbies looking to invest small amounts.
Whether this is a wise investment strategy for those with very little to invest, is by no means certain, given transaction costs on small amounts and the potential lack of diversification in a small portfolio.
CFD: RED FLAG OR REVOLUTION?
The low barrier to entry is made possible by the undoubtedly clever technology and the creative use of contracts for difference (CFDs).
EasyEquities allows investors to buy only a part of a share. For example, if you only have R100 to spare, you can buy a fraction (in this case 16.31%) of a single Sasol share, which traded at R612.92 for a full share at the time of writing. Should Sasol issue dividends, you will receive a corresponding fraction of the dividends, in other words 16.31% of the dividend amount. While you own a fraction of a share, you have no ownership rights. The share belongs to the EasyEquities holding company, First World Trader Proprietary Limited (FWT), which is a 100%-owned subsidiary of Purple Group Limited (formerly Purple Capital Limited).
CFDs are contracts in which one party agrees to pay out the value of an asset to a buyer at the time that a contract comes to a close. In this case, the agreement is between EasyEquities and the individual investor. By entering into a CFD, EasyEquities agrees that it will pay out the value of the share at the time of selling, not of buying. For example, if you buy a quarter of a single share in Sasol (25%) at the current price of R612.92 and the share price increases to R700 by the time you want to sell,
THE GOOD NEWS IS THAT YOU CAN WORK TOWARDS OWNING AN ENTIRE SHARE, WHICH EARNS YOU ALL THE RIGHTS OF A NORMAL SHAREHOLDER.
EasyEquities will pay out 25% of R700.
If the value of the asset increases, the seller wins. If the value happened to decrease, you pay the difference to the buyer. According to Almero Oosthuizen, head of marketing at EasyEquities, the company has found a way to eliminate that risk by introducing 100% margins. “When you normally buy a CFD, the instrument is geared. The margin is basically like a deposit that is held by the issuer or provider of the CFD. It’s like getting a home loan and putting down a deposit.”
The difference, he explains, is that EasyEquities buys t he whole share when you buy a f raction. In other words, if you buy 25% of Sasol, EasyEquities puts up the other 75% to buy the full asset. “The fraction is bought as a CFD, but the instrument is not geared, which means the margin is 100% of the value of the fraction. For example, if I buy half a Naspers* share for R750, the margin is exactly what it would’ve cost you in the market for that fraction,” Oosthuizen explains.
“The 100% means the owner of the fraction captures the exact economics of the movement of the specific share, up or down. We don’t benefit from the losses of the investor, and the appreciation and depreciation of a share is captured by the holder of the share.”
The good news is that you can work towards owning an entire share, which earns you all the rights of a normal shareholder. “Let’s assume that you acquire one fifth of a share each month for five months. During months one to four you will own a CFD, however, as soon as you acquire the last 20% during month f ive, FWT will settle a whole security to FWT Nominees of which you will become the beneficial owner and the CFD will be closed.”
THE BEST PLACE FOR SMALL INVESTMENTS
“You won’t f ind a cheaper or friendlier place to buy the shares you love. No minimum trade commissions, no monthly account fees and no unnecessary data costs,” claims the platform’s website.
This claim is substantiated by the low brokerage fee of R0.62 per transaction, compared to between R60 and R98 at ser vice providers l i ke PSG Online or Sanlam iTrade. This is
undoubtedly ‘cheap and friendly’, but it’s not the only fee worth considering. Each transaction includes fees that EasyEquities are legally obliged to levy, the most substantial of which is a f lat rate of R10.92 per transaction that is paid towards the electronic settlement authority. A small investor protection levy charged by the FSB and VAT are also included. Investors who pay by card are also liable for a fixed charge of R1.60.
For an investor of larger amounts, this remains very cheap. A transaction cost of R15 on a R5 000 is 0.3% of the investment and indeed very reasonable. However, the R13.80 transaction cost on a R250 transaction becomes a 5.5% lev y − no small amount! Considering investors have the option of saving larger amounts to buy shares, or a R300 monthly ETF investment at a cost of R3.50 and 0.1% brokerage per debit order, EasyEquities might not be the best choice for small transactions.
WHAT THE EXPERTS SAY
Financial planner and author Warren Ingram is concerned about the complexity of the product. “I think they are trying to f ind ways for smaller investors to enter the stock market on a costeffective basis,” he tells Finweek.
“This is something that more companies should be trying to do. However, I think the structure is complex and if I don’t understand it fully, how will a novice private investor?”
Ingram also expresses concern over counterparty risk. “It means there is a company who is underwriting the investment that I am making. While I like the idea, I am not comfortable with the complexity of their structure. I would rather recommend a person invest in a normal ETF until they have accumulated sufficient capital to buy individual shares on a cost-effective basis,” he says.