Note: This article is courtesy of Iris.xyz
By Nasdaq Global Information Services
Back in July 2014, the Sterling/US Dollar exchange rate was reached a high of USD1.71 but since then it has headed south, falling as low as USD1.29 following Brexit.
This downward trend has been a boon for US investors travelling to Europe on vacation. And whilst many have continued to focus their investment portfolios on US domestic stocks, the idea of actually owning international stocks has taken a back seat.
This is ill advised, however, given that there are already early signs that the US dollar might be softening; indeed, the sterling has just risen to USD1.327 on the back of strong manufacturing data.
Rather than overlook the vast array of opportunities that exist to hold securities in dynamic international companies, there is a viable solution: American Depositary Receipts (ADRs). These have long been used (since 1927) to allow US investors easy access to foreign companies without having to set up overseas brokerage accounts. Simply put, an ADR is a dollar-denominated certificate issued by a US depositary bank that represents a specific number of shares in a foreign company trading on a US stock exchange.
“You can buy a foreign company’s stocks in the US without having to deal with currency issues. Also, the depositary bank issuing the ADR will convert dividend payments into US dollars and take care of any foreign tax issues,” says John Lewis, Senior Portfolio Manager at Dorsey, Wright & Associates (‘DWA’) a Nasdaq company that has been running a systematic momentum factor ADR strategy for the past decade.[related_stories]