It is frustrating to pay currency fees on investment. Many investors feel like a part of their money is lost and useless. Canadian Depositary Receipts (CDRs) have been created to solve that problem. Now the question is, is it too good to be true?
You’ll Learn
- A Canadian Depositary Receipt (CDR) is equivalent to US stocks but is traded in CAD. It provides a currency hedge and allows fraction shares.
- CDRs have been inspired by ADRs (American Depositary Receipts), which have been around for a long time. While they may look similar, they’re a totally different product.
- CDRs’ main goal is currency hedging. Do they offer a real solution to that? Part of the answer is found in their total return versus the underlying asset.
- Another strong belief about CDRs is that they allow investors to buy shares of expensive companies at a cheaper price. While this is not entirely wrong, it’s not entirely correct either. Mike explains this by describing different-sized pizza slices of the same total pizza.
- While Canadian Depositary receipts do not have hidden fees, they are fees attached to this currency-hedged product.
- Many investors wonder if the dividend is the same. While the yield is identical, the dollar amount is obviously smaller because of the fraction of shares you get.
- Are the tax implications similar to those of regular shares? The answer is a bit foggy here…
- A CDR can have low daily trading volumes but still be liquid. Mike explains why.
- In the end, we could say that CDRs work. However, Mike doesn’t buy them. Why?
- To Mike, the Norbert Gambit process is a better solution for Canadians who want to buy US stocks.
- ETFs are also good alternatives for investors with modest funds who want to buy shares of companies like Microsoft or Costco, which trade at a couple of hundred dollars each.
- Mike ends with a summary of the advantages and disadvantages of CDRs.
Related Content
Here’s the episode about valuation, the Dividend Discount Model (DDM), yield history, PE ratio trend, value score, payout ratios, and more!
Get the steps to the Norbert Gambit process.
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Hi Mike,
The newsletter reference to CDRs in late March drove me to try to fully investigate the negative total return for the three CDRs in your chart, as well as three others with great market popularity.
Using the Globe & Mail’s portfolio app, I created a currency neutral portfolio of each of $100K per security, buying the CAD exchange rate on 4/1/2022 as the inception date ($79,920 US for the US Market securities. This app auto creates the distributions to build the TR, so a 2-year TR was possible, showing in the native currency. Using the 4/1/2024 exchange rate to gauge the returns in a common currency validated large differentials, as you showed with the Y-chart. Having neither the $100/month for this service, nor a Bloomberg terminal, I hoped to still have a currency-neutral graphing over the period, but that tool is nowhere to be found. StockRover.com let me do a comparison table over given periods and showed the total return at the end point, in USD, when I imported all the transaction from the G&M.
I sent this query to John Heinzl, investment guru at the Globe, identifying you as the initiator, and asking him to write about it, and get CIBC to explain the negative results, and I think he will investigate. Gave him you chart and details, hoping he might contact you as a resource that deserves to be better known by the G&M, just as Justin Bender and Dan Bortolotti of PWL Capital has been featured for their help to DIY folks.
Enjoyed this podcast very much!