International investors have access to virtually limitless opportunities around the world, from Australia to Zambia. Buying and selling these foreign securities is easy to do through the use of exchange-traded funds (ETFs) and American depository receipts (ADRs). These investment products cover the vast majority of popular companies and countries around the world.
Take a look at the top 10 most popular foreign ADRs, as well as some important considerations for investors before purchasing them.
- American depository receipts are bundles of foreign stocks that are traded on the U.S. market.
- Many of the American depository receipts available include stocks from well-known and successful foreign companies.
- The additional risks of ADRs include political risk, exchange rate risk, and inflationary risk.
What Are ADRs?
American depository receipts are essentially American versions of foreign stocks. They are a popular way for American investors to invest in foreign companies. ADRs are created when U.S. banks purchase a bulk lot of shares from a company, bundle them into groups, and reissue them on a U.S. stock exchange. The bank then manages the ratio of U.S. ADRs to foreign shares to ensure that the ADRs are accurately priced on U.S. exchanges.
While these ADRs are easy to use, there are several risks that investors should consider. First, investors should consider any political risk in the foreign stock's home country. Second, there could be an exchange rate risk if the foreign currency fluctuates significantly, relative to the U.S. dollar. Third, consider any inflationary (or deflationary) risks that face the foreign stock's home country.
If you want to diversify your portfolio with foreign stocks, but you're nervous about assessing risks in foreign countries, you could consider using a global ETF that diversifies holdings across many countries.
The 10 Most Popular Foreign ADRs
Below, you'll find the 10 most popular foreign companies trading on U.S. exchanges, as measured by trading value. This data is sourced from J.P. Morgan's ADR Directory and was last updated on Oct. 24, 2021.
These companies represent some of the largest operations in foreign countries with substantial trading volume. Including some in your investment portfolio may be a great way to diversify with securities spanning geographies and industries.
Remember to do your own research before buying any of these stocks. Consider how they could fit into your overall investment goals.
1. Alibaba Group (BABA)
Alibaba Group Holdings Ltd. is a China-based company that's engaged in online and mobile commerce through products, services, and technology offerings in the People's Republic of China and around the world. J.P. Morgan lists its trading value at $3.72 billion. The ADR is listed on the New York Stock Exchange (NYSE).
2. NIO (NIO)
NIO is a Chinese car manufacturer that specializes in developing new electric vehicles. It's a relatively new company that was founded in 2014 and first went public in 2018. Its trading value is $1.11 billion, and trades in America on the NYSE.
3. Taiwan Semiconductor Manufacturing Company (TSM)
As the name suggests, this company is a semiconductor manufacturer based in Taiwan. It traces its history back to 1987, and it currently manufactures thousands of products for hundreds of customers. Its trading value is $725.45 million and, like the other two stocks so far, it also trades on the NYSE.
4. JD.Com (JD)
Like Alibaba, JD.Com is a China-based e-commerce company and direct competitor also specializing in online direct sales of electronics, home appliance products, and general merchandise. However, unlike Alibaba, JD.com trades on Nasdaq, not the NYSE. Its trading value is $490.79 million.
5. Baidu (BIDU)
An early adopter of AI technology, Baidu is the number one search engine in China and develops new AI businesses. Its trading value is $547.97 million on the Nasdaq.
6. Nokia (NOK)
A Finnish tech company, Nokia is a global provider of network equipment, software, services, and licensing opportunities. Traded as an ADR on the NYSE, it has a trade value of $112.40 million.
7. Pinduoduo (PDD)
Yet another Chinese e-commerce company, this ADR connects Chinese agricultural growers with their communities via a mobile marketplace. It is traded on the Nasdaq with a trading value of $1.04 billion.
8. AstraZeneca (AZN)
This NYSE-traded ADR allows Americans to invest in the British-Swedish biopharmaceutical company AstraZeneca. Its operations include the discovery, development, and commercialization of prescription medicines, including vaccines. Its trading value is $247.26 million.
9. Bilibili, Inc. (BILI)
Catering to young generations in China, Bilibili is a full-spectrum video community, from lifestyle, games, entertainment, anime, and tech and knowledge. This ADR has a trade value of $209.33 million on the Nasdaq.
10. ASML (ASML)
This Dutch semiconductor manufacturer rounds out the list of the top 10 most popular ADRs. Founded in 1984, the company claims to have a physical presence in over 60 companies, giving it a wide range of potential customers. It trades on the Nasdaq and has a trading value of $1.04 billion.
What Percentage of My Portfolio Should Be in International Stocks?
Many advisors recommending keeping international stocks to a relatively small portion of your portfolio. Of your overall stock exposure, you may consider starting with up to 20% of your funds in international stocks. As with any portfolio balance, you should carefully consider your own goals, risk tolerance, and financial situation, rather than blindly following a rule of thumb.
Do International Stocks Tend to Rise When American Stocks Fall?
International stocks may provide some level of diversification, but you shouldn't mistake diversification for negative correlations. International stocks typically move in generally similar directions as domestic stocks, but they may not necessarily do so, or they do so to a different degree of volatility—that's what makes them valuable for diversification. Foreign stocks do not move perfectly in the opposite direction of domestic stocks, so they aren't the best hedging tool.
What Tax Forms Do You Use If You Own and Trade Foreign Stocks?
If your foreign stocks are held with a U.S. broker, then brokers will report your foreign stock information on a 1099-B. You can enter this information on Form 1040 when you file your tax returns. If you hold foreign stocks with a foreign financial institution, then you'll need to report those holdings on Form 8938.
Do Foreign Stocks Give Dividends?
Some foreign stocks give dividends and others don't. Just like with U.S. stocks, foreign stocks aren't obligated to issue dividends. In general, those that don't are growth stocks that aim for capital gains instead of dividend payments. More stable stocks offer dividends to make up for the relatively slow business growth.