We get it – tech stocks are super-popular with investors these days.
But it’s nice to see some non-tech names being added to the list of U.S. stocks that can be bought as Canadian Depositary Receipts. Traded on Canada’s NEO Exchange, CDRs are basically a fractional investment in an underlying U.S. company with a built-in currency hedge. However much the U.S. stock goes up or down, that’s what your CDR does. There’s no static from changes in the Canada-U.S. exchange rate.
The latest batch of eight new CDRs includes some tech companies, but also big names in other sectors. There’s Pfizer Inc. (PFE-NEO), the drug giant behind one of the key COVID-19 vaccines, as well as big box retailer Costco Wholesale Corp. (COST-NEO) and credit card company Mastercard Inc. (MA-NEO). The most intriguing addition for investors with a contrarian view might be Berkshire Hathaway Inc. (BRK-NEO), Warren Buffett’s legendary holding company.
On the New York Stock Exchange, Berkshire shares traded at just under US$280 at the beginning of December. The CDR version traded at just under $22 Canadian. This price comparison highlights how CDRs make the shares of big U.S. companies more accessible to Canadian investors. Another benefit is cost efficiency – retail investors get more favourable Canada-U.S. exchange rate when buying the BRK-NEO than if they used an online broker to buy BRK.B on the NYSE. Foreign exchange for clients buying and selling U.S. stocks is a profit centre for brokers.
The list of BRK’s subsidiary companies is long and varied – insurers, plus makers of brickers, batteries, industrial lubricants, underwear, candy and furniture. There’s not a lot of tech in the mix, which helps explain why the BRK hasn’t in recent years been the S&P 500-beating juggernaut it once was.
Up a total of about 24 per cent over the past two years, BRK isn’t exactly beaten down. But against the tech-heavy S&P 500′s 44-per-cent gain, BRK does seem to be somewhat out of favour. The six-month numbers accentuate this take – BRK was down 4.3 per cent, while the S&P 500 gained 8 per cent.
A legit concern if you’re eyeing CDRs is whether they catch on enough to ensure a tight bid-ask spread when buying and selling. With low-volume stocks and exchange-traded funds, you may find yourself having to pay more than the current market price to complete a purchase of shares, and accept less than the market price to sell.
CIBC reports that the average per-day number of client trades in CDRs has grown from 700 in September to 5,500 at the start of November, and that assets have grown to more than $290-million. This isn’t blow-out growth, but it’s enough to suggest investors are definitely interested in CDRs. Broadening the selection of available stocks can only help.
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