Rob Carrick: The new super-simple way to buy into Warren Buffett’s holding company

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We get it — tech stocks are super-popular among investors these days.

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But it is good to see some non-technical names added to the list of US stocks that can be purchased as Canadian Depository Receipts. Traded on the Canadian NEO exchange, a CDR is basically a fractional investment in an underlying US company with an underlying currency hedge. This is what your CDR does, no matter how much US stocks go up or down. There is no constant change in the Canada-US exchange rate.

A new, money-saving way for Canadians to buy big US tech stocks

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The latest batch of eight new CDRs includes some tech companies, but also big names in other sectors. there is Pfizer Inc. (PFE-NEO), the pharmaceutical giant behind one of the major COVID-19 vaccines, as well as the big box retailer Costco Wholesale Corp. (cost-neo) and credit card company Mastercard Inc. (MA-NEO). The most interesting addition may be for investors with a contrasting view. Berkshire Hathaway Inc. (BRK-NEO), the legendary holding company of Warren Buffett.

On the New York Stock Exchange, shares of Berkshire traded below $280 in early December. The CDR version traded at just under $22 Canadian. This price comparison highlights how CDRs make stocks of large US companies more accessible to Canadian investors. Another advantage is cost efficiency – retail investors get a more favorable Canada-US exchange rate when buying BRK-NEO than if they used an online broker to buy BRK.B on the NYSE. There is a profit center for forex brokers for clients who buy and sell US stocks.

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List of BRK Subsidiary companies has long and varied – insurers, as well as brickers, manufacturers of batteries, industrial lubricants, underwear, candy and furniture. There isn’t a lot of technology in the mix, which helps explain why BRK hasn’t been the S&P 500-beating juggernaut in recent years it once was.

With an overall increase of about 24 per cent in the last two years, BRK has not been beaten at all. But in the face of the tech-heavy S&P 500’s 44-percent gain, BRK appears to be somewhat out of favor. The six-month numbers sum up this take — BRK was down 4.3 percent, while the S&P 500 was up 8 percent.

One legal concern if you’re eyeing CDRs is whether they hold enough to ensure a tight bid-ask spread when buying and selling. With low-volume stocks and exchange-traded funds, you may have to pay more than the current market price to complete the purchase of the shares, and accept less than the market price to sell.

CIBC reports that the average number of client trades per day in CDRs has increased from 700 in September to 5,500 in early November, with assets increasing to more than $290 million. It’s not blown-out growth, but it’s enough to suggest that investors are definitely interested in CDRs. Only broadening the selection of available stock can help.

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