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Here's the deal: You may read the information on the site for free and ask questions. As and when I have the time I'll answer the questions on the website and add new articles. Please do not consider it to be advice - the only free investment advice is to apply your own mind. If you are worried about your investments, I am willing to have a look and improve it. If you are destitute I will try to help free of charge (but you join at the back of the queue). If you are not destitute then email me and we can agree a lower fee (percentage terms, repeating monthly, is fine) than you are currently charged. I have limited time available, and will prioritise the work accordingly, so please be patient. Email me at invest@freeinvestmentadvice.org detailing the situation for which you'd like advice. Rob Baker

Investec S&P500 Growth ESP

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19 June 2012. Somebody asked me about the Investec S&P500 Growth ESP - I don't have a complete understanding of the derivative instruments being used to generate it, but based on what I've seen I'm not going to take part in the initial listing of the Investec S&P500 Growth ESP (note the careful way I worded that - I'm leaving the door open to investing post-listing, if the value falls sufficiently - although that may introduce additional tax issues, if my holding period is less than 3 years):

I'm not saying it wont outperform - even investments which face structural headwinds can outperform when the dice rolls in their favour - but it's the kind of investment I avoid.

About the Investec S&P500 Growth ESP

From their website, the Investec S&P500 Growth ESP offers (this is a summary of what I perceive to be important, navigate to the Investec site for details):

But you get no dividends (dividend yield on the 18th May 2012 was 2.0%).

"The instrument represents the investor's rights to a parcel of MSCI USA index ETFs as well as a put operation over these ETFs where the put option is designed to secure the investor's capital at expiry with performance linked to the S&P500 index. As compensation for the capital protection, the investor foregoes any right to receive distributions on the ETFs during the term of the S&P500 Growth ESP". (From readers' comments it sounds like there's more to it than just this - I don't have a complete understanding of the derivative instruments being used to generate the return).

It seems that there is a degree of "gearing", or borrowing money in order to multiply the capital growth (positive or negative, I assume).

Listed on the JSE

The S&P500 Growth ESP is going to be an inward listed investment on the JSE. It has a term of 3.5 years, with Investec reserving the right to extend the term by a maximum of 6 months, should market conditions necessitate.

Offer closing date is the 6th July 2012 & the trade date is 11th July 2012.

Liquidity

As it is listed on the JSE, one can sell the instrument at market prices, although one has no idea what that market-related price will be.

Distributor fees

The advisor receives a 0.5% upfront fee and 0.75% is paid annually in advance for the first 3 years (including VAT).

Tax implications

These can change over time. "The definition of a "Qualifying Share" in section 9C of the Income Tax Act means an equity share which has been disposed of. An "equity share" is defined in section 9C to include a participatory interest in a portfolio of a collective investment schemes in securities. Section 9C of the Income Tax Act number 58 of 1962 ("Act") deems receipts and accruals arising from the disposal of a Qualifying Share to be of a capital nature if the taxpayer was the owner of the Qualifying Share for a continuous period of at least 3 years immediately prior to the sale."

Investec's view on the product

While I am not be a believer, I love the fact that Investec did a video of the reasons they like the product (10/10 to their marketing department). I do believe in presenting the other side of the story, so here it is:

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