What is going on you guys and welcome back to the channel. Today we have a very special episode. We're going to be talking about CDRs. Now CDRs or Canadian Depository Receipts, these are an innovative product in the Canadian investing scene that allows Canadians to invest beyond borders through CDRs that are linked to foreign stocks. BMO has recently launched CDRs with exposure to Asian and European markets with Japanese, German, and Swiss companies currently available.
This launch has opened the doorway to global investing for many Canadians and allows for greater diversification of investment portfolios by providing exposure to foreign stocks. Thank you to Bima Global Asset Management for sponsoring this video. I'm joined here today with Dave Hudson, Head, Structured Solutions, Bima Global Asset Management to chat about everything that you need to know about CDRs.
Dave, how are you doing? And thank you for joining me on the channel today. Thank you for having me, Brandon.
It's great to talk to you today. I've been looking forward to this. I'm so excited.
I know our viewers have so many questions. These are the questions we see all around the space. And I'm so honored to be speaking with you to kind of get some of these questions answered by yourself.
Great. Why don't we start with this at the very high level? What is a Canadian depository receipt, a CDR, and how does it differ from directly buying foreign stocks? Great. So Canadian depository receipts or CDRs, they're financial instruments that represent ownership in foreign companies, yet they're traded in Canadian stock exchanges in Canadian dollars.
Unlike directly buying those foreign stocks, Brandon, CDRs provide Canadians the opportunity to access global markets without the need to engage directly with foreign exchanges or navigate foreign currency fluctuations. As an added bonus, CDRs are generally issued at a price lower than the underlying share. So Canadians effectively have fractional exposure to large globally listed stocks.
That makes total sense. And yeah, you kind of hinted at this, but the next question I had for you was how does an investor go about actually buying or selling these CDRs? Is it similar to buying and selling, let's say an ETF or an exchange traded fund? Exactly.
So exactly like buying an ETF or a stock, you just go to your, you know, through your usual investment channels, like BMO Investor Line, you can just purchase CDRs via any of these online retail brokerages or through your financial advisor. Amazing. And what particular like stock exchanges do these CDRs trade on or where can investors buy them? Yeah. So currently CDRs trade on the CBO Canada, which is located here in Toronto.
Okay. Amazing. In what way do CDRs offer currency hedging? This is something that I've heard.
And how does this feature benefit Canadian investors in terms of these foreign transactions, foreign exchange transactions, excuse me. Oh, that's great, Brandon. So CDRs come with a a built-in notional currency hedge. So you don't have to worry about exchange rate fluctuations between the Canadian dollar and the currency of the underlying share.
This is very important. So this means your return is dependent on the performance of the company, not the fluctuation of the currency, mitigating additional risk associated with cross-border investing. Got it.
I've noticed, in fact, you actually mentioned this earlier, but CDRs often trade at lower... share prices right if we look at prices like if we're looking at the literal price per share then the actual underlying foreign stocks and i assume this is like a really good thing for a lot of investors um yeah for sure it's that high price tag right yeah it's one of the main advantages of cdr so each cdr represents ownership of a fraction of underlying share so when bmo launches their cdrs for example they start trading at ten dollars per share the underlying share may be trading at a significant multiples to that price So CDRs, let's make it easier to access these large, well-known global holistic companies. Yeah, fractional ownership continues to be one of the main benefits of CDRs. Yeah.
And you certainly see that as a benefit, correct? Absolutely. Yeah.
So I think so as well. This is a question that is, I know, a very popular one, but how are dividends paid out to CDR investors? And what role do foreign exchange rates play in the distribution of dividends in Canadian dollars?
Now. Brandon, that's a great question. So investors are entitled to any dividends paid on the underlying shares in Canadian dollars proportional to the number of underlying shares they own, just like owning the share directly and when receiving dividends.
Since the dividends are paid in Canadian dollars, investors aren't worried to have to subsequently go through any currency conversion. So it's another benefit. Oh, that's refreshing to hear.
Can you explain briefly BMO's role as depository in the CDR market? Like what is unique about CDRs that are issued by BMO? And when were these CDRs issued by BMO even launched? So as a depository, BMO manages the CDR program for the CDRs that it issues.
This includes managing the notional currency hedge so that the investors don't have to worry about currency fluctuations. So BMO is looking to what we're trying to do here is we're trying to expand the number of CDRs available to Canadians to include well-known globally listed names such as Toyota, Mercedes-Benz and Nestle. That's actually the next question that I was going to ask, and I've been itching to ask.
What underlying foreign stocks are Cedars currently linked to? I know you listed a couple there. Yeah.
So currently there are Cedars listed on various US, European, Asian companies. The list of jurisdictions will continue to grow over time. And as I said, our initial ones include Toyota, Mercedes-Benz, and Nestle. And there's more to come as time goes on.
And this is a question that I think would be so valuable for my audience. You know, we just try to provide such a range of information on this channel. What type of investor would you say is suitable for investing in CDRs? I think there's many type of investors. You and me are suitable for investing in CDRs.
I think, you know, what CDRs look to do is they look to protect against currency fluctuations and make it far easier for you to access global markets. So CDRs are a helpful tool in your investment portfolio. Each investor is obviously different and, you know, you have to do your own analysis or work with a financial advisor, discuss what's suitable for them.
Right. That's fair. And I guess maybe wrapping up kind of towards the end of this, you know, little interview here, Dave, I do want to ask the question, what are some of the risks or downsides of investing in CDRs?
You know, if there even are any, it's something that I do think is a fair question to ask. Yeah, that's a very important question. What do CDRs do? They're offering protection against currency fluctuation. They're helping investors reduce foreign exchange costs and they're providing fractional exposure.
It's those three things. However, just like any other share ETF, there is no guarantee that a CDR will increase in value over time. There's just so many variables that impact the performance of a CDR and the underlying share, including what's going on in the market, the economy, and all the other specific risks associated with a particular company. So all investors should consider an investment in CDR with the overall context of their investment portfolio, as well as other considerations. Of course.
And you did mention there, you know, there is a fee that is involved. That's something that I think people do need to be aware about. A very fair fee, in your opinion, for all of the benefits that it offers, correct?
So it, yeah. So the way BMO makes money on CDRs is by charging a small fee to manage the FX. It's a spread.
And it's no more than 60 basis points per annum. Gotcha. Okay.
Because I know that's a question that I'm sure in the comments section people are going to get. But no, thank you for being transparent with that. And I guess for my viewers, where can they learn more about CDRs? In particular, BMO's suite of CDR products.
I can happily direct them there or put some links down below this video. Great. Really appreciate that. So there's a growing number of resources online and your investors are all very savvy and can search and find them.
But I would have your investors go to bmocdrs.com as a start. We're, you know, we're, we're launching with these new jurisdictions and we're looking to broaden the opportunities for Canadians going forward. Well, Dave, no. So that's, hey, I personally think this is just so exciting.
And I want to thank you for taking time out of your day to come speak on this. Again, I'll leave that website down below. So it's easy for anybody to go ahead and click and just simply learn more about these new products, these new CDRs.
learn more about what they're all about, how to go about purchasing them, how BMO is really removing the barriers to investing overseas. I want to thank you once again, Dave, for coming on. And yeah, this has been an absolute blast. Thank you for having me. Really appreciate it.