EasyEquities:

A fresh new way to in­vest

Finweek English Edition - - FRONT PAGE - BY KRISTIA VAN HEER­DEN

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.

War­ren In­gram

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