Investing in US markets

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18. ADRs

ADRs (American Depositary Receipts) are similar to UK CDIs (CREST Depository Interest) and are tradable certificates that substitute for the underlying shares of foreign companies. Their main purpose is to allow American investors to get exposure to foreign investments without having to actually deal in the shares themselves. It works like this:

1. The foreign companies choose a 'depository', such as a US bank, to issue certificates that represent a claim on their shares. These certificates are the ADRs.
2. The ADR price is set to suit the American market (where the face value of share prices is typically higher) and this means that each ADR usually represents several foreign shares, rather than just one.
3. The ADRS are then traded by investors. They have their own ticker symbols and are traded in the normal way through a broker. If you own the ADR, then in effect you own the underlying bundle of shares.

Over 2,000 non-American companies are traded in the US through ADRs. For UK investors, they can be a useful way of getting exposure to large continental and Far Eastern blue chips.

• They are generally easier to trade than the equivalent foreign shares.
• American share purchases carry no stamp duty, unlike British ones.

One feature of ADRs to note is that although they are priced in US Dollars, the ultimate currency exposure for the investor is to the currency of the underlying share. For example, the France Telecom ADR is priced in US Dollars, but the effective currency exposure is to the Euro - not the US Dollar.

1. Diversification 2. Opportunity 3. Special features of the US market 4. You are already investing abroad! 5. Opening an account to deal in US securities 6. Inputting orders 7. Cash management 8. Currency factors 9. Tax 10. Trading on margin 11. Short selling 12. Types of investment - introduction 13. Shares (common stocks) 14. Indices 15. Bonds 16. Offshore mutual funds 17. Exchange-traded funds 18. ADRs 19. Options 20. Researching US companies - the basics 21. National newspapers 22. Regional newspapers and specialist magazines 23. Business TV 24. Company annual reports 25. Corporate web sites 26. EDGAR 27. Financial portals 28. Broker research 29. Charts 30. Conclusion

• Investing in Latin America