What Is an ADR? Buying a Foreign Company Through a U.S. Security

An American depositary receipt, or ADR, represents an interest in shares of a non-U.S. company held through a U.S. depositary bank. It gives investors a way to hold exposure to a foreign company through a security traded in U.S. dollars.

Does one ADR equal one foreign share?

Not necessarily. Investor.gov explains that an ADR can represent one share, multiple shares or a fraction of an underlying share. Read the deposit agreement and security description before comparing the ADR's price with a quote in the company's home market.

The ratio matters for understanding what you own. A price difference between two screens is not enough to establish a bargain when the securities represent different amounts of ownership and may use different currencies.

Which fees should you investigate?

The depositary bank can charge custody or depositary-services fees under the agreement. The SEC notes that these may be deducted from dividends or passed through to investors in other ways, including when the ADR pays no dividend.

Other fees can relate to currency exchange, distributions, voting or additional services. Ask the brokerage which charges apply to the specific ADR and where the terms are disclosed. Do not assume commission-free trading means the entire holding is fee-free.

What should you research beyond the receipt?

Investigate the underlying company and the political, economic and social conditions in its home country. Investor.gov warns that non-U.S. disclosure requirements can differ from those for U.S. companies, so the available information may not be directly comparable.

An ADR's U.S.-dollar trading format is not a substitute for that research. Review the issuer's available reports and the deposit terms before buying. International investments and ADRs can lose value, including the amount originally invested.

Frequently asked questions

Is every ADR backed by exactly one share? No. Ratios differ across programs.

Can there be a depositary fee without a dividend? Yes. The SEC describes charges passed through to investors even when there are no periodic dividends from which to deduct them.

Sources and further reading: Investor.gov, American Depositary Receipts (https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-88).