Canadian Depository Receipts (CDRs)

Introduction

• CDRs (Canadian Depository Receipts): Financial instruments for Canadians to invest in foreign stocks through Canadian exchanges.
• BMO's Recent Launch: Focus on Asian and European markets, including companies from Japan, Germany, and Switzerland.

Features of CDRs

• Functionality: CDRs represent ownership in foreign companies but are traded on Canadian exchanges in Canadian dollars.
• Advantages:
  • Avoid direct foreign exchange engagement.
  • Mitigate currency fluctuation risk.
  • Allow fractional ownership, making large global companies accessible.

Buying and Selling CDRs

• Process:
  • Similar to purchasing ETFs or stocks.
  • Utilized through platforms like BMO Investor Line or financial advisors.
• Trading Venue: CDRs are traded on the CBO Canada in Toronto.

Currency Hedging

• Built-in Hedge: Protects against exchange rate fluctuations between CAD and the currency of the underlying share.
• Benefit: Return depends on company performance, not currency value changes.

Pricing

• Share Price: Generally lower than the underlying foreign stock, providing easier access to high-value global companies.

Dividends

• Payment Structure: Dividends are paid in CAD proportional to owned shares, eliminating the need for currency conversion.

BMO's Role and Launch

• Depository Functions: Manages the CDR program and currency hedging.
• Expansion: Aims to broaden available CDRs to include companies like Toyota, Mercedes-Benz, and Nestle.

Suitable Investors

• Target Audience:
  • Individuals seeking protection against currency fluctuations.
  • Those looking for easier access to global markets.
• Decision Process: Should be aligned with individual investment portfolios and advised by financial professionals.

Risks and Considerations

• Potential Downsides:
  • No guaranteed increase in value.
  • Subject to market and economic conditions along with company-specific risks.
• Fees:
  • Management fee of up to 60 basis points per annum for FX management.

Resources

• Further Information: Visit bmocdrs.com for more details on BMO's CDR products and upcoming expansions.

Conclusion

• Overall Impact: CDRs present a new opportunity for Canadians to diversify their investments globally while minimizing currency-related complexities.
• BMO's Commitment: Continues to provide solutions to facilitate easier access to international investments.

Note: This summary is based on a presentation discussing the features, benefits, and considerations surrounding Canadian Depository Receipts (CDRs), with insights provided by Dave Hudson from BMO Global Asset Management.