CDRs vs. US stocks: Which is better for Canadian investors?

Take Microsoft for example. When you search for the ticker MSFT, several options may appear. Another real NASDAQ-listed Microsoft stock that, as of May 8, 2026, traded at about US$416 per share. But you may also notice other options sitting below it, such as CIBC Microsoft CDR CAD Hedged under the same ticker, and BMO Microsoft CDR CAD Hedged under the ticker ZMSF.

These are Canadian depositary receipts, or CDRs. MoneySense previously covered the mechanics of CDRs in detail in the 2025 article, but the short version is that they allow Canadians to gain exposure to US stocks (and now international stocks) in Canadian dollars with a currency hedge built in.

That currency hedge is designed to adjust for volatility between the Canadian and US dollars. Investors still get exposure to shares of the underlying stock, although those remain subject to the 15% US withholding tax.

At first glance, they can look very attractive. Another reason is affordability. One share of Microsoft is worth more than US$400, while the CIBC Microsoft CDR trades at around $29.35 Canadian and the BMO version at around $8.32 CAD. For investors who don’t have access to fractional shares, or those who simply prefer not to exchange in US dollars, that low entry price can make building a portfolio much easier. And if your brokerage charges a higher commission on US-listed stocks than Canadian-listed issues, you can save on your operating costs as well.

But CDRs are not a free lunch. Built-in hedges come with costs. Depending on the provider, that fee can range from about 0.6% to 0.8% per year. Over time, those costs can add up, especially when compared to holding the underlying U.S. stock directly.

That raises an important question: historically, how has a Canadian investor fared by owning a CDR version of an American stock instead of the stock itself? In particular, after accounting for hedging costs and foreign withholding taxes, how different would long-term returns be?

The answer helps clarify when CDRs make sense, compared to when owning the underlying US stock directly may be a better option for Canadian investors.

Estimating CDR tracking error relative to US stocks

To test this, I also tested two widely traded and long-dated blue-chip CDRs against their underlying US stocks. I specifically wanted to look at two different situations.

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1. The first involved a dividend-paying company, where the CDR investor would incur both hedging costs and deductions from the 15% US withholding tax on dividends.
2. The second involved a company that did not pay dividends, to isolate how much of the difference could be attributable to hedges and other structural conflicts.

All data is taken from PortfolioVisualizer.com using the longest common return period available for both the stock and its corresponding CDR. Returns are presented net of administrative costs, but before taxes, broker commissions, or obvious trading conflicts such as bid-ask spreads.

The first comparison was The Coca-Cola Company (KO) versus CIBC Coca-Cola CDR (COLA). From January 2023 to April 2026, Coca-Cola shares have compounded by 9.76% per year and dividends have been reinvested. CDR is lagging behind at 8.14% per annum. That’s a noticeable difference of 1.62%.

Source: Portfolio Visualizer

To isolate where some of that drag may have come from, we can start with currency hedges. Assuming the high end of the provider’s estimated currency hedging costs, about 0.6%, he adds that the CDR return brings it to 8.74%. Then there is the dividend withholding tax.

As of May 8, 2026, Coca-Cola’s trailing five-year dividend yield was 2.89%. Applying a 15% withholding tax to that yield results in another 0.43% drag. Even after accounting for both hedge costs and dividend deductions (a total of 1.03%), the CDR still trails the underlying stock by a margin of 0.59%.

Of course, these figures are back-of-the-napkin in nature, but the broad point remains: there seems to be some additional drag on CDRs beyond just the headline currency spread and the foreign dividend tax deduction.

For my second example, I used the stock that paid the least dividends (Amazon) and in the short period from January 2026 to April 2026. The results were still weak in CDR, although the gap decreased to 0.99%.

Source: Portfolio Visualizer