Another post for stock newbies today...
Quality offensive the 5th.
Structure:
1. what does adr even mean and what do we need it for?
2. similar products
3. risks/disadvantages
4. adr shares examples
5. sources
6. recommendations
1. what does adr even mean and what do we need it for?
An Adr (American Depositary Receipt) is not a real share. An Adr is a certificate of ownership of a share issued by an American bank. This certificate of ownership can refer to one, several or even just shares of a stock. But why do you need these "fake" shares at all?
On the one hand, shares that are to be listed in the USA must prepare their balance sheets according to certain rules (US GAAP). This is relatively expensive and complicated, which deters many companies.
On the other hand, it is not so easy for many US investors to invest in foreign securities. (for example state pension funds, banks or life insurance companies) This is partly due to laws but also to their own statutes.
Now, the US stock market is not only important for companies (NYSE is considered the most important stock exchange in the world) in order to reach a broader mass of shareholders (37% of DAX shareholders came from North America in 2020), it is also of course advantageous for American investors (whether private or institutional) to be able to invest in more assets. (the so-called home bias (people invest mainly in their country of origin) is nevertheless very high, especially in America). And ADRs exist to make this possible or simplify it.
There are two different types of ADRs:
If an issuing bank (the bank that issues the ADRs) is commissioned by the company to issue an ADR, we speak of a sponsored ADR (here it is graded in levels, but that goes too deep for this post, but if there is demand I can explain this separately). In the case of an unsponsored ADR, the intention comes solely from the bank, but unsponsored ADRs are not admitted to trading on many stock exchanges.
2. similar products
The problems with ADRs do not only exist in America, but also outside the USA. There are GDRs (Global Depositary Receipts) and EDRs (European Depositary Receipts). As with ADRs, a corresponding share for which an ADR, GDR or EDR is issued is deposited with the issuing bank.
Unlike the ADR, however, a GDR is not listed in the USA but usually in London, while an EDR is quoted in euros and not in US dollars.
There are also ADSs, which are a share of a non-US listed company that is listed in dollars. The ratio of an ADS to an ordinary share is often 1 to 1, and ADSs are often deposited for ADRs. However, an ADS is
not actually so easily available to the private investor
3. risks/disadvantages
Currency risk
If we invest in a country with a foreign currency, we often have a so-called currency risk. This means that the prices of our shares can also depend heavily on currency movements. The Russian rouble or the Turkish lira, for example, are particularly volatile.
As an ADR is listed in dollars, we even take on a double currency risk if we buy an ADR of a company not listed in euros.
Profit diversification
Depending on the ADR, dividends paid by the company are either distributed or reinvested. If the dividend is distributed, the issuer often deducts part of the dividend. Firstly, when the dividend is converted from the foreign currency into dollars, it can also be converted from dollars into euros.
Voting rights
The ADRs vary in terms of voting rights. Deutsche Börse Group writes as follows: "as a rule, ADRs are linked to an entitlement to the dividend, but not to voting rights"
No issuer risk
If the issuer goes bankrupt, the ADRs can be exchanged for "original" shares; the deposited shares are the property of the ADR holders. This can also happen if the issuer announces the dissolution of the ADRs. On the one hand, the ADR can then be sold or exchanged for original shares.
but
Trading problems
Many banks do not have access to "original" shares and therefore cannot trade them. So swapping ADRs for original shares rarely makes sense.
A concrete example: shortly after Russia attacked Ukraine, a user (name escapes me) asked for help on Getquin, his Gazprom ADR was canceled and he could either have the money paid out or exchange it for "original" shares.
At that time, the Moscow Stock Exchange was closed (for 1 month), so even if he could trade these "original" shares through his bank, he would not have gotten rid of the shares. Also, trading in Russian securities is currently not possible for Europeans. Unfortunately, I don't know what happened to the Gazprom position, but the user is welcome to contact me again, I would be interested in the outcome.
4. Adr shares examples
To list a few ADR shares that you can only buy as ADR via Trade Republik (my broker, link in bio):
- BioNTech(ADR) $BNTX (+0,93 %)
- Oatly(ADS) $OTLY (-3,33 %)
- Tencent Music (ADR) $TME (+1,32 %)
- Nestle(ADR) $NSRGY (-0,25 %)
- Jinko Solar (ADR) $JKS (-1,72 %)
- Nio(ADR) $NIO (+2,12 %)
- Sea(ADR) $SE (-1,3 %)
- TSMC(ADR) $TSM (+0,43 %)
I can only explain the fact that only the ADR is ADR by the fact that L&S is only allowed to trade/trade these, with Alibaba, for example, there is an ADR and a normal share via tr.
If you want to find out about individual ADRs or ADSs, you can find them on the following page: https://www.adrbnymellon.com/directory/dr-directory
Price, exchange rate etc. are displayed there
5. sources
https://finanzgeschichten.com/adr-ads-und-gdr-oder-doch-lieber-die-aktie-direkt-kaufen/
https://www.adrbnymellon.com/directory/dr-directory
https://www.boerse.de/grundlagen/markt/Die-wichtigste-Boerse-der-Welt-New-York-Stock-Exchange-NYSE-
https://www.fidor.de/blog/us-aktienmarkt
https://kamiltaylan.blog/adrvsads/
https://www.tagesschau.de/wirtschaft/finanzen/boerse-moskau-aktienhandel-101.html
6. recommendations
I will mark 3 people under my longer posts who also make really cool content, so feel free to drop by:
They have requested a post about Adrs @Divmann , @Variett & @Barsten . Thanks for voting😊
Thanks for reading
