We believe most investors could benefit from holding some foreign investments in their portfolios for added diversification. Still, investing internationally remains riskier than investing in North America. With stocks markets around the globe, you may face language barriers, uncertain investor-protection laws, and in some cases a less pronounced commitment to openness, fairness and other qualities we tend to take for granted in established markets.
One of the best ways to make it easier to profit on foreign markets is with American Depositary Receipts (ADRs).
An American Depositary Receipt is an investment unit for foreign companies that trade on a U.S. stock market. These units can represent fractions of shares, whole shares, or multiple shares in the foreign company. ADRs can help you simplify your international investing by letting you buy foreign shares on U.S. exchanges without the complications of buying or selling on a foreign exchange, in a foreign currency.
You’ll need to be highly selective with these investments. Yet they can help you cut risk, because American Depositary Receipts must follow some U.S. Securities and Exchange Commission and New York Stock Exchange rules.
In our advisory on U.S. investing, Wall Street Stock Forecaster, we recommend 8 ADRs, including Japanese carmaker Honda Motor Co. (symbol HMC on New York) and Swiss power and robotics firm ABB Ltd. (symbol ABB on New York).