Over There: Screening for Reasonably Priced ADRs

by Wayne A. Thorp

Investors are constantly hearing about the diversification benefits of foreign equities, but direct investment in foreign-traded stocks is difficult and costly for the individual investor.

While individual investors can easily access the foreign markets via international mutual funds, if you are looking to invest in individual stocks, an excellent route overseas is to purchase shares of international companies in the form of American depositary receipts (ADRs).

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A depositary receipt is a negotiable certificate that trades like a common stock; it is issued by a U.S. bank and represents shares of a non-U.S. publicly traded company. They are priced in U.S. dollars and owners avoid many costs associated with direct foreign investment, such as international settlement, global custody, foreign brokerage, currency conversions and multi-currency accounting. Dividends are also paid out in U.S. dollars, but may be subject to foreign withholding tax.

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