American Depository Receipts (ADR) are offered by the American Stock Exchange which allows investors to trade in foreign securities. American banks hold foreign securities in safekeeping in their foreign branches and issue a claim to them which can be traded on American markets. In the past, investments in foreign securities were not as prevalent amongst U.S. investors as it is today. Globalization has helped change the perspective of investors as the total value foreign securities exceeded the total value of the U.S. securities markets.
Investors can obtain exposure to foreign securities with many different investment vehicles. An American Depository Receipt represents one or more shares of foreign stock or a fraction of a share. If you own an American Depository Receipt you have the right to obtain the foreign stock it represents, however most U.S. investors find it convenient to own the ADR. The price of an American Depository Receipt corresponds to the price of the foreign stock in its home market, adjusted to the ratio of the ADRs to foreign company shares.
The main benefits to investing in foreign securities through American Depository Receipts are:
- SEC Registration
- US Dollar Denominated Value
- US Dollar Denominated Dividends
- Listed on U.S. Stock Exchanges
- Low Custody Fee
A financial advisor can help determine the appropriate portion of your investment portfolio that should be owned based on your personalized investment policy statement designed to reach your True North.
