Q – I was wondering if you could provide your opinion regarding Canadian Depositary Receipts (CDRs) issued by CIBC for fractional ownership of expensive U.S. stocks such as Microsoft, Google, Amazon, etc.? Are they appropriate for small investors looking to participate in some of these companies? Thanks. – Tom M., Saskatoon
A – Give credit to CIBC for some clever financial engineering here. The bank has created a product that makes U.S. stocks that trade at hundreds or even thousands of dollars available to Canadian investors at a fraction of the cost of the underlying security.
Plus, the CDRs are currency hedged. The bank explains it this way: “The CDR Ratio is automatically adjusted on a daily basis to account for the notional currency hedge. If the Canadian dollar increases in value compared to the U.S. dollar (or other relevant foreign currency), the CDR Ratio for each CDR is adjusted to represent a larger number of underlying shares. Conversely, if the Canadian dollar decreases in value compared to the U.S. dollar, the CDR Ratio for each CDR is adjusted to represent a smaller number of underlying shares.”
The units had an initial price of about $20. They all trade on the NEO Exchange, often under the trading symbol of the parent company. So, for example, if you want to own fractional shares in Amazon.com, you would buy AMZN CDRs on the NEO Exchange. They closed on Oct. 22 at C$20.93. Full Amazon shares finished that day in New York at US$3,335.55.
CDRs are available for a wide range of companies. They include Apple, Disney, Alphabet, Facebook, Microsoft, Netflix, PayPal, Tesla, and Visa.
Dividends from the parent companies are passed through to CDR investors in Canadian dollars. CIBC says there are no on-going management fees.
You can find more information at https://cdr.cibc.com/#/cdrDirectory.
As for my opinion, I would prefer to own the basic shares. But these CDRs are a worthwhile option for investors with limited resources and who like the currency hedge. – G.P.