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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.


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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