Instruments – American Depository Receipts

American citizens can invest in the shares of hundreds of major overseas-based companies, including names such as British Petroleum, Sony, and Toyota, via American Depository Receipts (ADRs) that are traded on the US stock markets in US dollars.

For an expansive definition of ADRs refer to: WikiPedia >> American Depository Receipts

An article at the www.sec.gov site has the following advice for Americans.

The stocks of most foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs) issued by U.S. depositary banks. Each ADR represents one or more shares of a foreign stock or a fraction of a share. If you own an ADR you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares.

Owning ADRs has some advantages compared to owning foreign shares directly:

  • When you buy and sell ADRs you are trading in the U.S. market. Your trade will clear and settle in U.S. dollars.
  • The depositary bank will convert any dividends or other cash payments into U.S. dollars before sending them to you.
  • The depositary bank may arrange to vote your shares for you as you instruct.

On the other hand there are some disadvantages:

  • It may take a long time for you to receive information from the company because it must pass through an extra pair of hands. You may receive information about shareholder meetings only a few days before the meeting, well past the time when you could vote your shares.
  • Depositary banks charge fees for their services and will deduct these fees from the dividends and other distributions on your shares.
  • The depositary bank also will incur expenses, such as for converting foreign currency into U.S. dollars, and usually will pass those expenses on to you.

To download the complete PDF link to: SEC guide to foreign investing for U.S. citizens(PDF)

Note: The PDF contains a very basic, albeit somewhat dated, table to highlight the negative correlation that sometimes exists between international equity markets and the US equity market.

A list of current ADRs can be downloaded as a spreadsheet from: http://www.adr.com

On the first visit to the site it is necessary to accept the terms of access (there is no fee or login and personal, or contact details, do not have to be provided).

To download the file:

From the adr.com Homepage go to the DR Universe tab >> Download Universe to open the following link: http://www.adr.com/jpmorgan/gau/adr_gau.xls 

Note: For accessing ADR data from Yahoo – generally ADRs that are listed on the major markets use the ticker as it is listed in the adr_gau file, while those that are traded on the OTC market use an extension e.g. AGRPY.PK

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