A new investing innovation called the Canadian depositary receipt is going well enough to double the size of the franchise.
CDRs, offered by Canadian Imperial Bank of Commerce, represent a fractional piece of an underlying U.S. stock. The newest round of CDRs, listed in the NEO Exchange, are Microsoft Corp. (MSFT-NE), Walt Disney Co. (DIS-NE), Visa Inc. (VISA-NE), Facebook Inc. (FACE-NE) and PayPal Holdings Inc. (PYPL-NE).
These five CDRs build on an initial lineup of Alphabet Inc. (GOOG-NE), Amazon.com Inc. (AMZN-NE), Apple Inc. (APPL-NE), Netflix Inc. (NFLX-NE) and Tesla Inc. (TSLA-NE). All 10 are designed as a cheap, currency-hedged way for small Canadian investors to buy into some of the biggest heavyweights in the U.S. market. The initial price for these shares has been about $20, whereas the U.S.-listed versions can trade in the thousands of U.S. dollars.
CIBC says it has seen a strong response to its depositary receipts, notably among do-it-yourself investors, and total CDR assets were $70-million as of midweek. A total of about 4.5 million shares have traded since launch and the per-day average number of trades has grown from an average of 310 per day in August to more than 670 in September. Bid-ask spreads – the difference between what investors are willing to pay as buyers and willing to accept as sellers – are a little larger than with the U.S. shares. For example, AMZN-NEO had a bid-ask of four to five cents at one point this week, while the U.S. shares had a predictably tight spread of one cent.
The true test of CDRs is how well they replicate the performance of the underlying U.S. shares, and early indications are positive on this count. Over 63 days of trading, AMZN-NEO fell 8.68 per cent and AMZN-N fell 8.63 per cent. The currency-hedging feature of CDRs ensures you get virtually the same returns as the underlying shares, with no distortions caused by volatility in the Canada-U.S. exchange rate.
There’s one more CDR feature of note to small investors who want to keep it simple. Usually when you buy U.S. shares, your broker will expensively convert your Canadian dollars into U.S. currency. CDRs do the exchange using institutional rates, which are a better deal.
-- Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
The Rundown
Don’t lose sight of good news around stocks
In recent weeks, stock prices have wobbled as investors fret over rising bond yields, persistent inflation and slowing growth. Soaring energy costs have evoked memories of stagflation in the 1970s. Throw in the debt-ceiling mess in Washington, metastasizing problems in China’s property sector and the U.S. Federal Reserve’s imminent taper of its massive bond purchases, and skeptics have had plenty of material with which to fashion their own dystopian sagas. But investors may want to hold off before assuming all this drama is headed for a depressing 1970s-style finale. Yes, there are real reasons for concern, but what may surprise most people is the sheer amount of good news that has been quietly accumulating in recent months. Ian McGugan explains.
Also see: Buying the dip? Not so fast, some Wall Street banks say
If you’re feeling good about your renewable energy stocks, better look away from the rally in coal
Funds that conform to environmental, social and governance (ESG) principles are seeing a massive influx of investor dollars. Yet companies involved with fossil fuel extraction are being rewarded with spectacular gains this year, as demand for traditional energy surges against a backdrop of tight supplies that could last for months. Welcome to one of the great conundrums in today’s market. David Berman shares his insight.
Copper analysts reset outlook on China’s dual demand ructions
As our Scott Barlow pointed out earlier this week, copper has been key to determining the direction of the Canadian dollar in recent months. It also has considerable influence on the materials sector of the TSX. Now, copper analysts are reviewing their price forecasts for the red metal after simultaneous disruptions in two key sectors in China that together make up more than half the country’s copper demand. Here’s what they are predicting.
Why Wall Street cheers China, despite growing business unease
This year has been unsettling for Chinese business. The ruling Communist Party has gone after the private sector industry by industry. The stock markets have taken a huge hit. The country’s biggest property developer is on the verge of collapse. But for some of the biggest names on Wall Street - including investment giant BlackRock - China’s economic prospects look rosier than ever. Li Yuan of The New York Times explains.
Others (for subscribers)
Number Cruncher: Amid volatile markets, these U.S.-listed dividend stocks have bullish momentum
Number Cruncher: Bond fund search includes checking sensitivity to interest rate changes
The highest-yielding stocks on the TSX, plus risk data
Friday’s analyst upgrades and downgrades
Friday’s Insider Report: Trustee tops up his position in this resilient Trust yielding 7.3%
Thursday’s analyst upgrades and downgrades
Thursday’s Insider Report: CEO and management executives each land million dollar paydays
Europe’s record IPO year has a sting in its tail
Globe Advisor
How to play the new energy bull market
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
What’s up in the days ahead
Watch for a number of actionable investment ideas next week in exchange-traded funds, including which ETFs to bet on for a continued natural gas boom.
U.S. banks expected to report mixed Q3 results, iffy loan outlook
Inflation, energy, earnings and other world market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff