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Bank of Montreal is stepping into a booming product category that offers exposure to popular global stocks while hedging against currency volatility, becoming the second Canadian bank to do so.
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BMO will launch five Canadian depositary receipts in the European and Japanese markets, each to be priced at about $10 and trade on the Cboe Canada exchange.
CDRs for Europe-listed Mercedes-Benz Group AG and Nestle SA will begin trading on Feb. 6, and of Japanese companies Toyota Motor Corp., Honda Motor Corp. and Nintendo Co. on Feb. 10, the bank said in a release.
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David Hudson, managing director at BMO Global Asset Management, compared the growth of Canadian depositary receipts to the popularization of exchange-trade funds in the 2010s.
“It was the beginning of what will be an incredible innovation cycle in the industry,” Hudson said in an interview. “So, we think the time is right to enter. We think it is helpful for there to be more entrants in the market. We’re very excited about the innovation that we think will happen over the next three to five years.”
Canadian Imperial Bank of Commerce debuted the first CDRs in July 2021, listing Alphabet Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Tesla Inc. on Cboe Canada.
On Monday, CIBC announced the first European CDRs: its own Mercedes-Benz CDR, as well as ones for Allianz SE, BMW, SAP SE and Siemens AG. They begin trading Jan. 31.
That will take the bank to 70 listings totaling $8.3 billion in assets under management. CIBC said it’s seen more than $75 billion in traded volume since the program’s launch, with annual volume rising 233 per cent from 2023 to 2024.
Hudson, who has been with BMO since October 2022, previously worked at CIBC and helped the bank introduce its CDRs.
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The products have been promoted as a way to gain exposure to global stocks in Canadian dollars. The CDR’s price gives an investor a variable number of company shares — a rising loonie increases the figure, while a falling loonie does the opposite.
The Canadian dollar has been trading at multiyear lows based on U.S.-dollar strength and tariff threats, which Hudson said made it a good time to launch. BMO’s CDR program will include a fee of as much as 60 basis points to manage the currency hedge, he said.
Elliot Scherer, managing director and head of the Wealth Solutions Group with CIBC, said investment advisers have become more interested in CDRs recently because of the weakening loonie.
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CIBC’s fee for the currency hedge averages about 60 basis points per year for its U.S. CDRs and will be about 80 basis points for its global products.
BMO and CIBC both said they’re planning more launches.
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