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American depositary receipts (ADRs) are financial instruments that allow U.S. investors to buy and sell foreign companies on U.S. stock exchanges. A U.S. bank issues a certificate representing a specific number of shares of the foreign company.
ADRs allow U.S. investors to gain easy, liquid access to foreign companies without worrying about opening custody accounts, foreign currency conversion, and trading on foreign exchanges. ADRs are priced and pay dividends in U.S. dollars and adhere to U.S. financial reporting standards. The advantage for foreign companies is that by offering ADR versions of their shares, they can provide a convenient vehicle for U.S.-based investors to invest in their company.
Pros
Cons
Direct indexing is one of the fastest-growing segments of the financial services industry, with Cerulli Associates projecting separately managed account (SMA) assets of $2 trillion by the end of this year.
Direct indexing allows advisors to customize or manage taxation in index portfolios. For example, if a client works for a company and has highly appreciated exposure to its stock, that company can be excluded from the direct index. Direct indexing also accommodates personalization, such as the expression of ESG and value-based screening. Additionally, direct indexing can be used to harvest tax losses and generate “tax alpha.”
One of the challenges for direct indexing is how to best provide exposure to non-U.S. companies. ADRs are the perfect tool for this, but to date, only a handful of index providers offer ADR index exposure. Arising from this unmet need, VettaFi has created and launched a new suite of ADR Indexes.
VettaFi’s suite of ADR Indexes provides a broad range of international coverage using ADR-listed holdings, including developed and emerging markets, as well as full world exposures.
While there are far fewer ADRs than local exchange-traded foreign equities, each index has been constructed to minimize sector, country, and tracking error differences relative to the international equity index upon which it is based.
These indexes will provide a valuable tool for accessing foreign markets in SMA and direct indexing portfolios.
If you would like to learn more about VettaFi’s new ADR Index family, please contact the team here.
American depositary receipts (ADRs) are financial instruments that allow U.S. investors to buy and sell foreign companies on U.S. stock exchanges. A U.S. bank issues a certificate representing a specific number of shares of the foreign company.
ADRs allow U.S. investors to gain easy, liquid access to foreign companies without worrying about opening custody accounts, foreign currency conversion, and trading on foreign exchanges. ADRs are priced and pay dividends in U.S. dollars and adhere to U.S. financial reporting standards. The advantage for foreign companies is that by offering ADR versions of their shares, they can provide a convenient vehicle for U.S.-based investors to invest in their company.
Pros
Cons
Direct indexing is one of the fastest-growing segments of the financial services industry, with Cerulli Associates projecting separately managed account (SMA) assets of $2 trillion by the end of this year.
Direct indexing allows advisors to customize or manage taxation in index portfolios. For example, if a client works for a company and has highly appreciated exposure to its stock, that company can be excluded from the direct index. Direct indexing also accommodates personalization, such as the expression of ESG and value-based screening. Additionally, direct indexing can be used to harvest tax losses and generate “tax alpha.”
One of the challenges for direct indexing is how to best provide exposure to non-U.S. companies. ADRs are the perfect tool for this, but to date, only a handful of index providers offer ADR index exposure. Arising from this unmet need, VettaFi has created and launched a new suite of ADR Indexes.
VettaFi’s suite of ADR Indexes provides a broad range of international coverage using ADR-listed holdings, including developed and emerging markets, as well as full world exposures.
While there are far fewer ADRs than local exchange-traded foreign equities, each index has been constructed to minimize sector, country, and tracking error differences relative to the international equity index upon which it is based.
These indexes will provide a valuable tool for accessing foreign markets in SMA and direct indexing portfolios.
If you would like to learn more about VettaFi’s new ADR Index family, please contact the team here.
