CDRs Offer Canadian Investors Access to Global Equities with Reduced Risk

The challenges of global investing for Canadian investors are well-documented. To mitigate foreign exchange risk and high share prices, Canadian Depositary Receipts (CDRs) have emerged as a viable solution.

Similar to American Depositary Receipts (ADRs), CDRs represent a fractional interest in a foreign company's stock, giving Canadians access to global giants like Apple, Amazon, NVIDIA, Eli Lilly, and more without ever leaving the Canadian market. The key feature of CDRs is their fractional interest, which establishes a per-share price that appeals to individual investors.

The Apple Inc. CDR (TSX: AAPL) recently traded at C$44.61 per share, while common shares of Apple Inc. (NSD: AAPL) were trading at US$316.83 (~C$436.76). The fractional interest is calculated by dividing the Canadian dollar value of APPL on the Nasdaq by the Canadian dollar value of APPL that trades on the TSX.

The CDR ratio adjusts daily, reflecting changes in the U.S. dollar's strength or weakness. This currency hedge comes at a cost, estimated to be roughly 60 basis points (0.60%) annually, embedded in the CDR ratio rather than as a separate fee. When Apple rises 2% in US dollar terms, the AAPL CDR rises roughly 2% in Canadian dollar terms, minus the hedging cost.