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!
All-Time High, Should I Buy? [Podcast]
Get the steps to the Norbert Gambit process.
From CAD to USD With No Fees – A Guide to Norbert’s Gambit
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