Nvidia helps fuel the rise of CDRs as a way to invest in U.S. stocks, tech and otherwise

March 3, 2024 Articles & Reports HOME     MEDIA  

Source : The Globe and Mail Inc.

Author : Rob Carrick

Perhaps you’ve heard of Nvidia (NVDA-Q), the AI computing stock that surged 250 per cent in the past year or so.

You could jump on board by purchasing Nvidia shares on Nasdaq, but the cost would be around US$810 per share. Buying a board lot of 100 shares would be quite the financial commitment for a high-flying tech stock. An alternative thought: Buy the Canadian Depositary Receipt version of Nvidia (NVDA-NE) at around C$77 per share.

CDRs were launched by Canadian Imperial Bank of Commerce in July 2021 and have since attracted about $4-billion in assets as of last week. The most popular of the 54 CDRs currently listed on Cboe Canada is Nvidia , with assets of about $552-million. The next most popular CDRs are Amazon, Microsoft, Tesla and Alphabet. The tickers on Cboe Canada are the same as on U.S. exchanges - NVDA for Nvidia, plus AMZN for Amazon, MSFT for Microsoft, TSLA for Tesla and GOOG for Alphabet.

CDRs are fractional versions of U.S.-listed shares – if you chart the Nasdaq and CDR versions of Nvidia, the lines almost completely overlap. Whatever differences you see may be explained by a currency hedging fee of up to 0.5 per cent charged by CIBC. The offsetting benefit is that the price of CDRs is not subject to fluctuations in the Canada-U.S. exchange rate. Where CDRs track dividend-paying companies, the cash is paid out in Canadian dollars.

Excitement about Nvidia has helped drive broad interest in CDRs. Cboe Canada reports that the average daily value traded across the entire CDR lineup grew to $178-million in February from $50-million in the same month last year. Active trading is an important factor in investor acceptance because it drives the tight bid-ask spreads that help investors buy and sell at competitive prices. The typical bid-ask spread for CDRs is about two cents, Cboe Canada says. In a quick glimpse last Friday, Nvidia CDRs traded with a spread of 3 to 4 cents at mid-day.

The latest batch of CDRs was launched Feb. 13 and includes Lululemon (LULU), Palo Alto Networks (PANW) and Deere & Co. (DEER). While much of the excitement over CDRs has been driven by tech stocks, there’s also a selection of industrials, health care and financial companies. Berkshire Hathaway (BRK), Warren Buffett’s holding company, is also part of the group.

Expect more CDRs to come because investors are clearly starting to see them as a convenient way to ride U.S. stock market stars.

For some follow-up reading on CDRs, try this Q&A I did after they were launched.

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