Feb 1, 2022
While we adhere to strict editorial guidelines, partners on this page may provide us earnings.
Several hurdles await the Canadian investor hoping to get a piece of America’s biggest companies.
In addition to the added cost associated with purchasing shares in giant U.S. firms — brokerage fees, currency conversion fees, exchange rates that rarely favour the loonie — the shares themselves can be exorbitantly expensive for the average investor.
Advertisement
Most investors would love to have some Amazon in their portfolios, for example, but when a single share costs more than C$4,000, buying the company’s stock becomes a major financial decision. And the more cash you have tied up in a single company, the more risk your portfolio is exposed to.
But just because you don’t have the capital on hand to buy as much Amazon or Tesla stock as you’d like, don’t think America’s blue chip behemoths are out of reach. There’s a new, widening path you can take if you’re determined to place a bet on large U.S. companies: Canadian Depository Receipts (CDRs).
Buying CDRs is similar to purchasing fractional shares in companies investors otherwise couldn’t afford, but there are a few unique features. Let’s take a quick look at what CDRs are and how they can make you money.
What is a Canadian Depository Receipt?
Canadian Depository Receipts were first rolled out by CIBC last July. They’re essentially Canadianized versions of the American Depository Receipts U.S. investors have been using to buy shares in foreign companies since 1927.
Even though Depository Receipts are new to Canada, they’re an established product. CIBC says the global DR market is close to US$1 trillion.
Every Canadian Depository Receipt represents a number of fractional shares in a global company. They’re sold in Canadian dollars on the NEO stock exchange, one of the TSX’s many competitors.
Most CDRs initially sell in the $20 range and can be purchased the same way, and in most of the same places, you’d buy any other stock.
Advertisement
To date, CDRs have been launched for 18 U.S. companies:
- Advanced Micro Devices
- Alphabet (formerly Google)
- Amazon
- Apple
- Berkshire Hathaway
- Costco
- IBM
- JPMorgan
- Mastercard
- Microsoft
- Meta (formerly Facebook)
- Netflix
- Paypal
- Pfizer
- Salesforce
- Tesla
- Visa
- Walt Disney
An interesting quirk of CDRs is that the number of shares they represent varies from day to day. That’s because of a mechanism known as a CDR ratio, which adjusts automatically in response to the value of the Canadian dollar. If the dollar strengthens against the U.S. greenback, a CDR will represent a larger number of underlying shares; if it weakens, the CDR will be worth a smaller number of shares.
In the near-term, the CDR ratio can help reduce the volatility associated with exchange rates, says Jason Pereira of Woodgate Financial in Toronto.
“But the problem with that is it cuts both ways. The Canadian Dollar rallies, you protect yourself. The U.S. dollar rallies, you don't get the upside,” he says.
Must Read
- Warren Buffett used these 4 solid, repeatable money rules to turn $9,800 into a $150B fortune. Here’s how to apply them to your own life
- Stop the leak: 5 costs Canadians (still) overpay for every single month. How many are sabotaging your 2026 budget?
- Canada is officially in a recession — and it will trigger wealth-building bargain opportunities you haven’t seen in years. Get endless commission-free ETF trades now from CIBC
Join 19,000+ readers and get Money.ca’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
How are the returns on CDRs?
It’s important to remember what CDRs are when contemplating expected returns: They reflect the value of the stocks they represent.
Advertisement
The early performance of CDRs has been mixed – just as U.S. stocks themselves in recent months.
While CDRs track the price of their underlying stocks, they don’t always reflect them perfectly, because they are trading on different markets from the original stocks.
For instance, the value of Tesla’s CDR is up 33% since August, while the underlying stock is up 33.9%. Disney’s CDR has lost 22%, while the underlying stock fell 21.5%.
Canadian Depository Receipts expose you to the same volatility as typical stock picks, so if you dip your toe into the market this year, be prepared. As always, the value of your purchases could take a hit.
And if you're looking to hedge those investments with something almost certain not to move with stock markets, consider fine art.
It's a class of investment that has been limited to the wealthy until now, but thanks to a new trading platform, you can invest in blue-chip artworks at almost any price point.
You May Also Like
- This 7-step plan from Dave Ramsey is designed to help you ditch debt, save more and build wealth — here’s how it works
- Prioritize these 4 critical investments and watch your net worth skyrocket
- Focus on these 3 ‘magic numbers’ to become a millionaire — and only on these numbers. How do you stack up?
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
Clayton Jarvis is a mortgage reporter at Money.ca. Prior to joining the Money.ca team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.
