How to: Adr
Today again a post for newcomers to the stock market...
Quality offensive the 5.
Structure:
1.what does adr mean anyway and what do we need it for.
2.similar products
3.risks/disadvantages
4. adr stock examples
5. sources
6. recommendations
1.what does adr mean at all 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 only 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 discourages many companies.
On the other hand, it is not so easy for many U.S. investors to invest in foreign securities. (for example, state pension funds, banks or life insurance companies) This is partly due to laws, but also partly due to their own statutes.
Now the American stock market is not only important for the companies (NYSE is considered the most important stock exchange in the world) to reach a broader mass of shareholders (37% of DAX shareholders came from North America in 2020), also it is of course advantageous for the 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 to make this possible or to simplify it, ADRs exist.
There are two types of ADRs, between which a distinction is made:
If an issuing bank (the bank that issues the ADRs) is commissioned by the company to issue an ADR, we talk about a sponsored ADR (here it is graduated in levels, but that goes too deep for this post, but if there is demand I can explain this separately times). In the case of an unsponsored ADR, the intention comes from the bank alone, but unsponsored ADRs are not admitted to trading on many exchanges.
2. similar products
Now there are the problems for the ADRs do not exist only in America, but evenly also outside of the USA. For this there are GDRs (Global Depositary Receipts) or also 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 U.S. but mostly in London, and an EDR is quoted in euros and not in American dollars.
In addition, there are ADSs, these are a share of a non-U.S. 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
actually not so readily 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 ruble or the Turkish lira, for example, are particularly volatile.
Since an ADR is listed in dollars, we even take a double currency risk here if we buy an ADR of a company not listed in euros.
Profit sharing
Depending on the ADR, dividends paid by the company are either distributed or reinvested. When the dividend is distributed, the issuer often branches off a portion of the dividend. Firstly, when the dividend is converted from foreign currency to dollars, it is accessed again, even when converting dollars to euros.
Voting rights
With regard to voting rights, ADRs vary. Deutsche Börse Group writes thus: "as a rule, ADRs are linked to a claim 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 liquidation of the ADR. On the one hand, the ADR can 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 ADR 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 liquidated and he could either cash out the money 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 Russian securities is not possible for Europeans at this time. What became of the Gazprom position I do not know unfortunately the user may but like to get back to me, the outcome would interest me.
4. adr shares examples
To list a few ADR stocks that you can only buy as ADR through Trade Republic (my broker, link in bio):
- BioNTech(ADR) $BNTX (-1,07 %)
- Oatly(ADS) $OTLY (-0,45 %)
- Tencent Music(ADR) $TME (-2,26 %)
- Nestle(ADR) $NSRGY (+0,25 %)
- Jinko Solar(ADR) $JKS (-1,5 %)
- Nio(ADR) $NIO (-1,67 %)
- Sea(ADR) $SE (-0,27 %)
- TSMC(ADR) $TSM (+1,54 %)
The fact that only the ADR is I can only explain with 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 know about individual ADRs or ADSs you can find them on the following page: https://www.adrbnymellon.com/directory/dr-directory
Price, exchange rate etc. is 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 under my longer posts in each case 3 people who also make very cool content, so you can also like to stop by:
Wanted a post about Adrs @Divmann , @Variett & @Barsten . Thanks for voting😊
Thanks for reading
