Go global. It’s the rallying cry that the entire investment community has adopted of late, and for good reason–if growth is what you’re after.
Though some foreign markets sagged toward the end of 1996, others soared. The Brazilian stock market was up 51%, Mexico logged a 20% gain and Venezuela’s stock index rocketed 192%. In comparison, the U.S. market saw a healthy, yet much smaller, 20% rise in the Dow Jones industrial average.
With all due respect to corporate America, some of the world’s most profitable companies lie beyond these shores. “As recently as the early ’80s, portfolio managers recommended a 5% weighting in overseas investments,” says Jarvis Cromwell, a spokesman for Citibank. “These days that advised allocation has grown to 10%, and sometimes 200% [for more aggressive money managers].”
As an investor, you’re probably wondering what passport will take you abroad. Well, here’s a three-letter answer for you: ADR (American depository receipt). ADRs are traded just like stocks of U.S. companies, and many are listed on American stock exchanges (prices and dividends are quoted in U.S. dollars).
Yes, investing in global and international mutual funds allows you to diversify your portfolio with foreign shares. But if you’re angling toward holding a piece of an overseas corporation, ADRs are the answer. “If you want to invest in the automobile industry, why just look at GM and Ford,” says Cromwell, “when there’s Toyota, Volvo and a host of international players to choose from.”
ADRs were created back in the 1920s to allow American investors to tap into the British stock market. These holdings represent a set number of shares in a foreign company–Volvo, for in a foreign stock market in case, Sweden.
An ADR certifies a shareholder’s ownership of a foreign company’s stock held on deposit at a foreign branch of an American bank. ADRs simplify foreign investment by providing holders documentation and insuring payments that otherwise might be difficult to track.
With interest in investing booming, U.S. holds in foreign. mushroomed over past 10 years, from billion in equity to $300 billion. Also, the of ADR shares on the New York, American and Nasdaq exchanges rose 36% to $179 billion, during the first half of 1996.
The number of corporations available on the ADR market has grown as well, from Brazil’s primary telephone company, Telebras, to British Petroleum, and from pharmaceutical giant, Glaxo Wellcome, to cellular equipment maker, Nokia. The choices are broad enough to cover various major industries.
There’s also quite a selection of nations. South Africa’s reentry into the world community continues, with five companies offering new ADRs in the first half of 1996. Brazil also ranked among the biggest countries for new issues with five.
That’s not to say there aren’t factors to consider prior to jumping into the global investing fray. One thing to check is whether the ADR is sponsored or unsponsored. Sponsored issues must conform to many U.S. reporting requirements, ensuring that as an investor you are provided with regular, mentation such as annual reports covering the company’s results and operations.
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