Several of Europe’s largest stocks are being chopped up for sale to Canadian investors.
Five new Canadian Depositary Receipts from Canadian Imperial Bank of Commerce CM-T will start trading Friday on the Cboe Canada Exchange (formerly known as the Neo Exchange). CDRs allow investors to purchase a fraction of a share of a more expensive stock in Canadian dollars.
The new CDRs include Allianz SE, BMW AG, Mercedes-Benz AG, SAP SE and Siemens AG and will bring the total number of CDRs in CIBC’s lineup to 70. They represent the first time CIBC has offered the product for stocks listed outside of the United States since the lender first started offering them in July, 2021.
CDRs have become a popular option for Canadians looking to invest in large foreign companies while minimizing currency risk since they are priced in Canadian dollars, providing a hedge against exchange rate fluctuations. They are also more accessible to a broader investor base because each CDR represents only a fraction of a full share and is priced significantly lower as a result.
For example, CIBC’s Lululemon Athletica Inc. CDR LULU-NE – which launched in February, 2024, more than a decade after the Vancouver-based clothier abandoned its Canadian public listing in 2013 – was trading at $18.25 early Monday afternoon. Buying a single share of Lululemon’s Nasdaq-listed stock around the same time would have cost roughly US$405.
CIBC makes money on the CDRs it develops and manages by charging small fees from the foreign exchange transactions it makes to manage that currency hedge. However, those fees are capped at 60 basis points or 0.6 per cent on an annualized basis for U.S. CDRs and 80 basis points or 0.8 per cent on an annualized basis for global CDRs.
That is well below the conversion fees banks typically charge Canadian investors for buying U.S. dollar-denominated stocks, which are usually in excess of a full percentage point.
Trading data suggests CDRs have experienced strong demand from investors.
Total volumes went from roughly $17-million a day in late 2021 to an average of roughly $120-million as of January, 2024, according to Cboe Canada. Individual daily client trades more than tripled over that same period, growing from about 5,000 to routinely topping 18,000.
CDR trading volumes more than doubled over the course of 2024, with Cboe Canada data published on Jan. 24 showing daily average volumes for the final three months of last year was $244-million.
CIBC’s total CDR assets under management have also more than doubled over the past year, from $3.2-billion in January, 2024, to $8.3-billion as of Jan. 24, spokesperson Kathryn Lawler said in an e-mail.