Many large and popular stocks, such as big tech companies, trade only on the U.S. stock exchange, making it sometimes costly and complicated when currency fluctuates to navigate and buy US stocks.
Not only that, many of the big US stocks have outperformed Canadian stocks and you sit on the sideline watching others get rich …
With that said, and with your concerns warranted, you may wish to participate in the global market as a Canadian. Canadian Depositary Receipts, or CDRs, expose you to the worldwide stock market like NYSE and NASDAQ but are traded in Canadian dollars on the Canadian stock exchange.
What Is A CDR?
CDRs allow you to access shares from the world’s biggest companies outside Canada but traded in Canadian dollars. Like the U.S. version, American Depository Receipts (ADRs).
They are like traditional stocks you trade on the Toronto Stock Exchange, but they represent foreign companies. For example, each CDR trades on an exchange, pays dividends, and has voting rights.
The difference with investing directly in a US stock is the near effective elimination of the impact of foreign currency fluctuation because of a built-in notional currency hedge. So, your return depends on how well the underlying shares perform in their respective exchange/country.
Canadian CDRs are held in trust by the Canadian Bank of Imperial Commerce (CIBC) and are similar to the American DRs (ADRs).
Where Are CDRs Traded?
CIBC Capital Markets launched CDRs, a first of its kind for Canadian investors! CIBC Capital Markets seeks a healthy banking relationship involving in-depth industry knowledge with comprehensive capital markets, corporate banking and investment banking to meet their essential needs. They do so while working with domestic and international organizations and creating deep and meaningful relationships.
You can find CDRs to trade on the Neo Exchange; the ticker is “NE.”
Additionally, you can invest in your favourite online trading platforms, such as:
| CIBC Investor’s Edge | Qtrade |
| BMO Investorline | Questrade |
| RBC Direct Investing | WS Trade |
| TD Direct Investing | Interactive Brokers Canada |
| Scotia Trade | Virtual Brokers |
| National Bank Direct | Laurentian Bank |
| Canaccord Genuity Direct | Credential Direct |
| Desjardins Online Brokerage | HSBC Invest Direct |
But not all investment platforms will display the same ticker, so double-check to ensure you purchase the CDR and not the US stock. Otherwise, your wallet is in for a big surprise.
Fortunately, it should be relatively easy to tell the difference. The difference would be in the pricing; when CDRs start trading, the initial price is around $20 compared to the $1000+ US stock you may be looking at.
How A CDR Works
CDRs allow you to buy fractions of shares in U.S. stocks. Having fractional ownership is helpful to investors who can’t afford the whole share in their actual US price.
CDRs are also currency hedged, meaning that CIBC, as the issuer, will hedge the foreign exchange price fluctuations.
More on the way CDRs work is explained below.
Notional Currency Hedge
Economically, each CDR you own is the same as owning shares of a stock from a global company. Therefore, the number of shares each CDR represents is called the “CDR Ratio.”
The CDR Ratio is adjusted automatically daily by CIBC to account for the notional currency hedge. Therefore, as the exchange rate fluctuates, the number of shares of a company backing CDRs will fluctuate too.
The daily adjustments hedge the exchange rate risk that comes with cross-border investing. The hedging makes the difference between CDRs and ADRs, which are not protected from currency fluctuations.
Lower Investment Price
Each CDR will have an approximate initial price of $20. This is a very small amount compared to higher share prices on the US stock exchange for larger companies.
CDRs allow investors to purchase a small percentage of a share rather than the whole share, making investing in larger, more popular companies more accessible for the average Canadian.
Dividends
Dividends will still be paid to CDR investors in Canadian dollars, but they will be based on the foreign exchange rates when the dividend is received, and according to your CDR Ratio.
Voting Rights
CDR investors still have the right to vote for a certain number of shares. The vote depends on the number of CDRs held and how many shares each CDR reflects (CDR Ratio).
Liquidity
The liquidity is based only on its average daily volume. However, CDRs liquidity has more similarity to trading exchange-traded funds (ETFs).
The volume traded of your shares is a primary indicator of the liquidity of your CDR. Generally, the higher the trading volume of a share, the higher the liquidity amount of the CDR.
So, liquefying CDRs is to compare the buying and selling prices in the market; you can see this with the bid-ask spread.
Fees
CDRs do not have any management fees attached. However, there is an annual 0.6% service fee for currency hedging strategies.
Taxes
CDRs, like other investments, need to be properly taxed by investors by following Canadian tax laws. In some cases, taxes may be withheld by the local government of the CDR company. For example, if the company is from the US, you may need to provide a U.S. Internal Revenue Service Form W-8.
Comparing CDRs to US Shares
| Attributes | CDRs | US Shares |
|---|---|---|
| Listed on an exchange | ✔️ | ✔️ |
| RRSP/RESP/TFSA eligible | ✔️ | ✔️ |
| Voting entitlement | ✔️ | ✔️ |
| W-8 withholding tax form | ✔️ | ✔️ |
| Capital gains tax on gains | ✔️ | ✔️ |
| Trades in Canadian $ | ✔️ | ✖️ |
| Dividends paid in Canadian $ | ✔️ | ✖️ |
| Institutional FX rates | ✔️ | ✖️ |
| Currency hedged | ✔️ | ✖️ |
| Fractional share ownership | ✔️ | ✖️ |
Pros & Cons of CDRs
| CDR PROS | CDR CONS |
|---|---|
| Fractional ownership of U.S. companies. | If you have high capital, performing Norbert’s Gambit and buying U.S. stocks can be cheaper than the 0.6% annual fee. |
| You can invest in expensive stocks for a fraction of the price. | Some may prefer to avoid having restrictions on currency and stay unhedged. |
| Canadians can trade in their currency. | |
| Avoid paying currency transaction fees. | |
| You can track your portfolio in one currency. | |
| CDR ownership is the same as having U.S. stock. | |
| Currency fluctuations have no impact on returns since it is hedged. |
Current List of CDRs (May 2023)
More CDRs will be added along the way, make sure to bookmark this page and check it regularly.
| CDR Stock | CDR Symbol |
|---|---|
| ABBVIE CDR | ABBV.NE |
| ADVANCED MICRO DEVICES CDR | AMD.NE |
| ALPHABET INC. CDR | GOOG.NE |
| AMAZON.COM CDR | AMZN.NE |
| APPLE CDR | AAPL.NE |
| BANK OF AMERICA CDR | BOFA.NE |
| BERKSHIRE HATHAWAY CDR | BRK.NE |
| BOEING CDR | BA.NE |
| CHEVRON CDR | CHEV.NE |
| CISCO CDR | CSCO.NE |
| CITIGROUP CDR | CITI.NE |
| COCA-COLA CDR | COLA.NE |
| COSTCO CDR | COST.NE |
| CVS HEALTH CDR | CVS.NE |
| EXXON MOBIL CDR | XOM.NE |
| GOLDMAN SACHS CDR | GS.NE |
| HOME DEPOT CDR | HD.NE |
| HONEYWELL CDR | HON.NE |
| IBM CDR | IBM.NE |
| INTEL CDR | INTC.NE |
| JPMORGAN CDR | JPM.NE |
| MASTERCARD CDR | MA.NE |
| MCDONALD’S CDR | MCDS.NE |
| META CDR | META.NE |
| MICROSOFT CDR | MSFT.NE |
| NETFLIX CDR | NFLX.NE |
| NIKE CDR | NKE.NE |
| NVIDIA CDR | NVDA.NE |
| PAYPAL CDR | PYPL.NE |
| PFIZER CDR | PFE.NE |
| PROCTER & GAMBLE CDR | PG.NE |
| SALESFORCE.COM CDR | CRM.NE |
| STARBUCKS CDR | SBUX.NE |
| TESLA, INC. CDR | TSLA.NE |
| UBER CDR | UBER |
| UNITEDHEALTH CDR | UNH |
| UPS CDR | UPS |
| VERIZON CDR | VZ |
| VISA CDR | VISA |
| WALMART CDR | WMT |
| WALT DISNEY CDR | DIS |
Buying shares from U.S. companies just got a whole lot easier!
CDRs are taking off in Canada, and as they become more and more widespread and understood by Canadians, CDRs will have a place. Although the annual fee may be inconvenient, you could save more than by buying U.S. stocks directly.
Over time, more and more companies will become available to Canadians in CDR form, and it’s a good thing for your portfolio, as mega-cap stocks can only be found in the US.
Also, brokerages like Wealthsimple already let Canadians buy fractional shares. So it may be something you want to consider before CDRs.