CDRs Offer Canadians Easier Access to Global Equities
Canadian investors have long faced challenges when trying to gain exposure to global equities. These obstacles include foreign exchange risk, high share prices for U.S. mega-caps, and administrative complexity in holding foreign securities.
The solution to these issues is Canadian Depositary Receipts (CDRs), which offer a unique blend of accessibility, currency stability, and fractional ownership.
A CDR represents a fractional interest in a foreign company's stock and can be traded on the Canadian market. For example, the Apple Inc. CDR (TSX: AAPL) was recently trading at C$44.61 per share, while the 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 currency hedge in CDRs adjusts daily, reflected through minor changes to the CDR ratio. This means that price movements reflect the underlying company's performance in local currency terms. When Apple rises 2% in US dollar terms, the AAPL CDR rises roughly 2% in Canadian dollar terms.