10-K: Invesco CurrencyShares Canadian Dollar Trust Reports Annual Results for 2023

The Invesco CurrencyShares Canadian Dollar Trust's 2023 annual report details the trust's performance, financial condition, and operational activities, highlighting a net comprehensive income of $1.87 million.

Summary

• The Invesco CurrencyShares Canadian Dollar Trust is a grantor trust that aims to reflect the price of the Canadian dollar in USD, less expenses.
• The trust issues shares in blocks of 50,000 (a Basket) in exchange for Canadian dollars and distributes Canadian dollars upon redemption of Baskets.
• The trust's primary expense is the sponsor's fee, which is 0.40% annually of the Canadian dollars held by the trust.
• For the year ended December 31, 2023, the trust incurred $353,671 in sponsor fees.
• The trust's net comprehensive income for 2023 was $1,869,091, compared to $146,701 in 2022.
• The trust's assets primarily consist of Canadian dollars held in deposit accounts with JPMorgan Chase Bank, N.A., London Branch.
• The interest rate on the primary deposit account was 2.76% as of December 31, 2023.
• The trust distributes excess interest income to shareholders monthly after covering expenses.
• The trust had 1,050,000 shares outstanding as of December 31, 2023, down from 1,350,000 at the end of 2022.
• The market value of the voting and non-voting common equity held by non-affiliates was $84,962,000 as of the last business day of the second fiscal quarter.

Sentiment

Score: 7

Explanation: The document presents a positive financial performance for 2023 with a significant increase in net income. However, it also highlights several risks associated with currency fluctuations, operational dependencies, and lack of active management, which temper the overall sentiment.

Positives

• The trust experienced a significant increase in net comprehensive income from $146,701 in 2022 to $1,869,091 in 2023.
• The interest rate on the primary deposit account was a positive 2.76% as of December 31, 2023, which is an improvement from previous periods.
• The trust maintains a transparent structure with daily reporting of net asset value (NAV) on its website.
• The trust has a clear objective of tracking the price of the Canadian dollar, providing a simple investment option for investors.

Negatives

• The trust's value is directly tied to the Canadian dollar, making it susceptible to currency fluctuations.
• The trust's expenses, primarily the sponsor's fee, can reduce the amount of Canadian dollars represented by each share over time if interest earned does not exceed expenses.
• The trust is not actively managed, so there is no attempt to mitigate losses from currency price changes.
• The trust is subject to cyber security risks, which could disrupt operations.
• The trust is not insured by the FDIC or any other federal agency, and shareholders do not have the protections of a registered investment company.

Risks

• Fluctuations in the Canadian dollar's price could materially and adversely affect the value of the shares.
• If interest earned by the trust does not exceed expenses, the amount of Canadian dollars represented by each share will gradually decline.
• The interest rate paid by the Depository may not be the best rate available.
• The trust is not actively managed and does not attempt to mitigate losses from currency price changes.
• Disruptions in the ability to create and redeem baskets may adversely impact the price of the shares.
• Substantial sales of Canadian dollars by the official sector could adversely affect an investment in the shares.
• International armed conflicts and pandemics may result in volatility in currency prices.
• Changes to United States tariff and trade policies may increase the volatility of foreign exchange rates.
• The deposit accounts are not entitled to payment at any office of JPMorgan Chase Bank, N.A. located in the United States.
• Shareholders do not have the protections associated with ownership of a demand deposit account insured in the United States by the Federal Deposit Insurance Corporation.
• Shareholders do not have the rights enjoyed by investors in certain other financial instruments.
• If the Depository becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant.
• The License Agreement with The Bank of New York Mellon may be terminated by The Bank of New York Mellon in the event of a material breach.
• The Depository owes no fiduciary duties to the Trust or the Shareholders, is not required to act in their best interest and could resign or be removed by the Sponsor, which would trigger early termination of the Trust.
• Redemption orders are subject to rejection by the Trustee under certain circumstances.
• The Depositary Trust Agreement may be amended to the detriment of Shareholders without their consent.
• Due to the increased use of technologies, intentional and unintentional cyber attacks pose operational and information security risks.

Future Outlook

The report contains forward-looking statements regarding the potential effects of future developments on the trust, but these are not guarantees of future performance and are subject to various risks and uncertainties.

Management Comments

• Management of Invesco Specialized Products, LLC, as sponsor of the Trust, is responsible for establishing and maintaining adequate internal control over financial reporting.
• The Sponsor's management assessed the effectiveness of the Trust's internal control over financial reporting as of December 31, 2023, and concluded that it was effective.
• The Sponsor is not aware of any known trends, demands, commitments, events or uncertainties that will result in, or are reasonably likely to result in, material changes to the Trust's liquidity and capital resources needs.

Industry Context

This report reflects the performance of a currency-based exchange-traded fund, which is influenced by global economic conditions, currency exchange rates, and monetary policies. The trust's performance is directly linked to the Canadian dollar's value, making it sensitive to international market dynamics.

Comparison to Industry Standards

• The Invesco CurrencyShares Canadian Dollar Trust is comparable to other currency-backed ETFs, such as the Invesco CurrencyShares Euro Trust (FXE) and the Invesco CurrencyShares Japanese Yen Trust (FXY).
• These trusts generally aim to track the performance of a specific currency against the US dollar, providing investors with exposure to foreign exchange markets.
• The sponsor's fee of 0.40% is a typical expense ratio for these types of passive investment vehicles.
• The trust's reliance on a single depository, JPMorgan Chase Bank, N.A., London Branch, is a common practice in the industry, but it also introduces a concentration risk.
• The trust's performance is directly correlated to the Canadian dollar's performance, which is influenced by factors such as commodity prices, interest rates, and economic conditions in Canada and the US. This is similar to other currency ETFs that are exposed to the specific economic conditions of the underlying currency.

Management Changes

Related Party Transactions

• The Trust pays the Sponsor a fee which accrues daily at an annual nominal rate of 0.40% of the Canadian Dollars in the Trust.

Stakeholder Impact

• Shareholders are exposed to the risks and rewards of the Canadian dollar's performance.
• Shareholders receive monthly distributions of excess interest income.
• Authorized Participants are able to create and redeem baskets of shares.
• The Depository manages the trust's Canadian dollar deposits.
• The Sponsor oversees the trust's operations and service providers.

Next Steps

• The trust will continue to operate as a passive investment vehicle, tracking the price of the Canadian dollar.
• The trust will continue to distribute excess interest income to shareholders monthly.
• The sponsor will continue to monitor the interest rate paid by the Depository and may remove the Depository if the rate is deemed inadequate.
• The sponsor will continue to manage cybersecurity risks to the fund.

Key Dates

Keywords

Canadian Dollar, Currency Trust, Invesco, FXC, Exchange Traded Fund, ETF, Foreign Exchange, Grantor Trust, CurrencyShares