Canadian F shares

Research
1

I was doing some research over the last few days and made an interesting discovery that I thought might help some users.

Almost all stocks traded on Canadian exchanges are available to trade in the US, most of them via F shares. An F share has a US ticker consisting of five letters, the last of which is an F.

F shares do not trade like ADRs at all. They do not trade on any exchange, instead being traded purely over the counter.

So when you place an order for, say, ANCUF, you will be actually trading ATD.B:CN, just with a different ticker symbol.

The major implication for us is that the volume numbers for F shares do not reflect their actual liquidity, but only the volume of shares traded in the US. ANCUF has a ten-day average volume of 10,000 shares. But ATD.B:CN has a ten-day average volume of 1.168 million shares. Which seems reasonable for Alimentation Couche-Tarde, a company with a market cap of $50 billion (Canadian dollars).

If you want to buy or sell Alimentation Couche-Tarde in the US, you should trade in ANCUF, not in ATD.B:CN, because with the latter you’ll be paying your broker currency conversion fees (my broker charges an outrageous 1%). And the liquidity will be exactly the same.

So if you’re using a volume-based limit to define your universe, you’re likely unnecessarily excluding a lot of perfectly liquid Canadian companies.

(There’s one exception to this, and that is the grey market. Most F shares in the grey market trade for less than $1. You can get a list of them here: https://www.otcmarkets.com/research/stock-screener by selecting Markets: Grey, Security Types: Foreign Ordinary Shares, and Country: Canada. Grey market securities can be hard–and weird–to trade because their bid and ask prices are not shown. Nonetheless, I’ve had little trouble getting in and out of grey market stocks, which have included some of Canada’s biggest companies.)

Right now we have no good way of screening for F shares, nor for automating the process of looking up data for a Canadian primary issue of an F share. So the following suggestion is going to be very imprecise. But here goes:

If your current liquidity limit is, say, MedianDailyTot(65) > 100000, change it to the following:

Eval (Country(“CAN”) and Universe(OTC), MedianDailyTot(65) > 20000, MedianDailyTot(65) > 100000). Basically, try and set your volume limit for Canadian F shares to about 20% of your limit for US companies.

This is, as I said, a very rough approximation, but I thought it worth suggesting anyway.

A better solution is in the works.

Of course, if your broker or your account doesn’t support OTC trading, ignore this thread entirely.

2 Likes
2

@Yuval, did you ever improve on this?

3

Yes. I use two different universes for Canadian stocks--one US only that gives me the F-share ticker and the other US and Canada that gives me the Canadian ticker. If you add the median daily dollar volume together, you'll get a good idea of the liquidity. There are a number of other quirks worth mentioning:

  • FactSet analyst data for Canadian stocks is available only when using the Canadian ticker, not the F share. So it's probably better to use your ranking system on the US & Canada universe.
  • Spread costs on F shares can be much higher than on the Canadian ticker, even if market impact costs are exactly the same. Data on spreads are not available from P123 for F shares or Canadian stocks, so you have to actually look at the ticker on your broker's site.
  • In the US, low-priced shares indicate bankrupt or very risky stocks. This is not the case in Canada. D-Box, for example, has been priced under $1.00 for the last twenty years. In Canada, this fact has no real significance. Whereas in the US, low-priced stocks are considered far riskier than stocks with prices greater than $5 or $10.
1 Like
4

How do you filter for only F shares?
Will this work?
IsPrimary = False and Country("CAN") and Ticker("*F")

And how do you add the volume together of two different universes?

Tony

5

IsPrimary = False and Country("CAN") and Ticker("????F")

This isn't flawless, though. EDVMF and SRBIF are country ("GBR") and MNSAF is country ("COL") even though they really are all Canadian F shares. A lot of mining companies all over the world trade their primary shares on the TSX.

In Excel using XLOOKUP and the company names.

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How does doing this in excel help your sim evaluate the volume?
How is this done within P123?

Tony

7

It can't be done within P123, and I don't use it for simulations. I use it to estimate market impact when I'm buying and selling Canadian stocks.

If you wanted to use it in a simulation you could download the data, manipulate it in Excel, and then upload it as an imported stock factor.