Canadian CDRs are relevant for investors who wish to invest in American stocks but don’t want to lose money on currency conversion.
It’s a good alternative for Norbert’s gambit that prevents Canadian investors from losing money in conversion exchange but takes about five days.
List of CDRs in Canada
Here is a current list of all the CDRs in Canada:
| CDR Company | Stock Ticker | Sector | Headquarters |
|---|---|---|---|
| AbbVie | ABBV | Healthcare | North Chicago, IL |
| Advance Micro Devices | AMD | Technology | Santa Clara, CA |
| Alphabet | GOOG | Technology | Mountain View, CA |
| Amazon | AMZN | Consumer Discretionary | Seattle, WA |
| Apple | AAPL | Technology | Cupertino, CA |
| Bank of America | BOFA | Financials | Charlotte, NC |
| Berkshire Hathaway | BRK | Financials | Omaha, NE |
| Cisco | CSCO | Technology | San Jose, CA |
| Coca-Cola | COLA | Consumer Staples | Atlanta, GA |
| Costco | COST | Consumer Discretionary | Issaquah, WA |
| CVS Health | CVS | Healthcare | Woonsocket, RI |
| Goldman Sachs | GS | Financials | New York, NY |
| Home Depot | HD | Consumer Discretionary | Atlanta, GA |
| Honeywell | HON | Industrials | Charlotte, NC |
| IBM | IBM | Technology | Armonk, NY |
| JPMorgan | JPM | Financials | New York, NY |
| Mastercard | MA | Financials | Purchase, NY |
| McDonalds | MCDS | Consumer Discretionary | Chicago, IL |
| Meta (Previously Facebook) | META | Technology | Menlo Park, CA |
| Microsoft | MSFT | Technology | Redmond, WA |
| Netflix | NFLX | Communication Services | Los Gatos, CA |
| Nike | NKE | Consumer Discretionary | Beaverton, OR |
| Nvidia | NVDA | Technology | Santa Clara, CA |
| PayPal | PYPL | Financials | San Jose, CA |
| Pfizer | PFE | Healthcare | New York, NY |
| Procter & Gamble | PG | Consumer Staples | Cincinnati, OH |
| Salesforce.com | CRM | Technology | San Francisco, CA |
| Starbucks | SBUX | Consumer Discretionary | Seattle, WA |
| Tesla | TSLA | Consumer Discretionary | Palo Alto, CA |
| UnitedHealth | UNH | Healthcare | Minnetonka, MN |
| UPS | UPS | Industrials | Atlanta, GA |
| Verizon | VZ | Communication Services | New York, NY |
| Visa | VISA | Financials | Foster City, CA |
| Walmart | WMT | Consumer Staples | Bentonville, AR |
| Walt Disney | DIS | Communication Services | Burbank, CA |
What Are CDRs
CDRs, or Canadian Depository Receipts, are investment instruments created by a Canadian bank that allows you to buy some American stocks with Canadian dollars from a Canadian exchange.
The bank buys and holds American stocks and issues CDRs available on a Canadian exchange.
The CDRs are different for each company, with their ticker symbol. From a performance perspective, a CDR is practically the same as the foreign (American) stock it represents, with two crucial differences:
- Each CDR is worth around $20, at least in the beginning. They represent a proportional segment/fraction of the stock’s actual value. So, if you buy one CDR of an American company’s share worth $100 (in CAD) at the time, you will get about a fifth of one share. If the stock pays dividends, you will get a proportional share of that. However, the value changes occasionally, and all the CDRs currently trading on the NEO exchange currently have a price range of about $15 to $35.
- While they pass through the performance, dividends, and even voting rights that come with the original shares of the company, the bank that issued the CDR still exists between you and the foreign (American) company you have invested in. This is beneficial because the bank manages this stock ownership and provides a built-in currency hedge.
- You can buy them directly in CAD, without any conversion or time delay, and gain an accurate exposure to the underlying stock.
CDRs can be a great way to achieve geographic diversification in your portfolio and gain access to more rapidly growing US-based blue chips.
These CDRs are the Canadian version of American Depository Receipts (ADRs) that have traditionally provided American investors exposure/access to foreign investments.
Issuer
Currently, only one Canadian bank is offering CDRs, the Canadian Imperial Bank of Commerce (CIBC).
Exchange
These CDRs trade on the Canadian NEO exchange, now operating as Cboe Canada.
Cost of Investing in A CDR
There are no official fees associated with the CDRs, but since the bank provides a service, it has to earn a profit for that.
It comes from the spread associated with currency exchange, which is posted daily on the CIBC’s CDR website. However, they are expected to remain below 0.5%, as per the current information provided by the exchange where they trade.
This is significantly lower than the conversion fees you may have to pay, which can vary between 1.5% and 3%. In addition to the conversion, there is also the currency conversion risk.
If the CAD is weak against USD when you are buying and selling, the impact can be quite significant on your returns.
Why Invest in A CDR?
A few things you need to know about before you make a decision to invest in a CDR are:
Benefits of Investing in Foreign Markets (Particularly US)
The main benefit of CDRs is access to US securities, though the CDRs may grow to include companies from other countries in the future like ADRs offer American investors.
Apart from geographic diversification, this can also add more pace to your portfolio.
American tech blue chips like Tesla, Nvidia, and Apple have offered exceptional growth to their investors, and through CDRs, Canadian investors can gain much easier access to them.
Fractional Investment
Another benefit offered by CDRs is fractional investment inherent in how they are created.
This breaks down expensive stocks like Nvidia and United Health Group, currently trading over US$450 and $520 apiece. Even if you are working with a small amount of capital, you can achieve diversification in the CDR segment of your investments.
Lower Cost of Investment (No Currency Conversion)
By replacing the currency conversion with a relatively smaller fee, CDRs lower the cost of investing in American stocks quite significantly.
No Delay
Canadian investors can also circumvent paying for currency conversion by using Norbert’s Gambit, but it has an inherent delay of at least five days. This can lead to missed investment opportunities, especially if you are planning on taking advantage of a trend.
Hedging
One of the most significant benefits offered by CDRs is the notional currency hedge built into this investment instrument. This hedge accounts for the strength and weakness that exists between two currencies at any given time in the market.
When CAD is weak against USD, your CDRs in an American company may represent a smaller share than when CAD is strong against USD. This effectively neutralizes the currency exchange risk inherent in foreign investments.
Individual Investments (As opposed to ETFs)
Through CDRs, you can gain exposure to individual American/foreign stocks and take advantage of their trends, compared to collective trends you may have access to through an ETF targeting American or other foreign companies.
It’s important to understand a few cons of CDR as well.
- The time cost associated with Norbert’s Gambit might look reasonable if you are working with a substantial amount of capital. Even at 0.5%, it can cost you about $100 if you are investing about $20,000 in CDRs.
- The hedging prevents you from taking advantage of the positive side of currency fluctuations, i.e., when CAD is stronger than USD.
How to Invest in a CDR?
All CDRs currently trade on the NEO exchange, which you can access with an online broker like Questrade or Wealthsimple.
The stocks retain their native tickers, like AMZN for Amazon and GOOG for Alphabet. They may have a suffix “.TO” based on the exchange you are trading on. You can identify them by the statement (CAD Hedged) in the name.
