Helping Clients Get Comfortable with ADRs

As we noted in one of our recent articles, over the last 20 years, publicly listed companies worldwide have grown significantly in number, while the number of publicly listed companies here in the U.S. has contracted.  Navigating global investment opportunities is a key way that financial advisors can add value for their clients.  The benefit of incorporating ADRs into the mix is that these securities are listed on U.S. exchanges, really making investing in them no more difficult than accessing any other securities that trade on our exchanges.

To get a flavor of some of the investment opportunities in this space, consider the following table which lists the top ten performing ADRs year to date from the investment universe that we use for our Systematic Relative Strength International portfolio (includes around 500 small, mid, and large cap ADRs from Emerging and Developed International markets).

adr_top 10

Source: Dorsey Wright. As of 3/28/2017.  Returns are price only, not inclusive of dividends or transaction costs.  Dorsey Wright currently owns LFL.  A full list of buys and sells in our Systematic RS portfolio over the past 12 months is available upon request.

Part of the reason that clients can be hesitant to invest in foreign securities is simply lack of familiarity—the well-documented home country bias.  See below for a brief description of the businesses of each of the companies listed above (Source: Yahoo! Finance).  This is in no a way recommendation of any of the above-listed stocks, but I do think it serves the purpose of helping pull back the curtain on some of the opportunities that exist when investors look to foreign companies.  Online gaming, flight transportation, semiconductors, plastics, communication equipment, travel agencies, natural gas and more.  We may use relative strength to identify what we believe to be good investment opportunities, but our clients may very well want to get a sense for the businesses before they are willing to allocation a portion of their money to these opportunities.

Gravity Co., Ltd (GRVY)

Gravity Co., Ltd. develops and publishes online games in South Korea, Japan, the United States, Canada, Taiwan, Hong Kong, Macau, China, and internationally. It offers online games; mobile games and applications; and other games and game-related products and services, including character-based merchandise and animation.

GOL Linhas Ãreas Inteligentes S.A. (GOL)

Gol Linhas Aéreas Inteligentes S.A. provides regular and non-regular flight transportation services for passengers, cargoes, and mailbags in Brazil and internationally.

ASM International NV (ASMIY)

ASM International NV, together with its subsidiaries, engages in the research, development, manufacture, marketing, and servicing of equipment and materials used to produce semiconductor devices. The company operates through two segments, Front-end and Back-end. The Front-end segment manufactures and sells equipment used in wafer processing, encompassing the fabrication steps in which silicon wafers are layered with semiconductor devices in Europe, the United States, Japan, and Southeast Asia.

Fuwei Films (Holdings) Co., Ltd. (FFHL)

Fuwei Films (Holdings) Co., Ltd., together with its subsidiaries, develops, manufactures, and distributes plastic films using the biaxially-oriented stretch technique in the People’s Republic of China. Its products include printing base films used in printing and lamination; stamping foil base films and transfer base films used for the packaging of luxury items, such as cigarettes and alcohol; metallized films or aluminum plating base films used for vacuum aluminum plating for flexible plastic lamination; high-gloss films used for aesthetically enhanced packaging purposes; and heat-sealable films used for construction, printing, and making heat sealable bags.

Sharp Corporation (SHCAY)

Sharp Corporation manufactures and sells electronic communication equipment, electronic equipment, electronic application equipment, and electronic components in Japan, The Americas, Europe, China, and internationally.

LATAM Airlines Group S.A. (LFL)

Latam Airlines Group S.A., together with its subsidiaries, provides passenger and cargo air transportation services in South America, North/Central America, Europe, Africa, Asia, and Oceania.

MakeMyTrip Limited (MMYT)

MakeMyTrip Limited, an online travel company, provides travel products and solutions in India and internationally. It operates through two segments, Air Ticketing, and Hotels and Packages.

Intelsat S.A. (I)

Intelsat S.A., through its subsidiaries, provides satellite communications services worldwide. The company offers a range of communications services to media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications in the air and on the seas, multinational corporations, and ISPs; and commercial satellite communication services to the U.S. government and other military organizations and their contractors.

Himax Technologies, Inc. (HIMX)

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide.

Transportadora de Gas Del Sur S.A.

Transportadora de Gas del Sur S.A. provides natural gas transportation and distribution services in Argentina.

Never before has it been easier for investors to invest in the strongest trends wherever they might be found in the world. Relative strength offers an ideal framework for allocating among those trends. Markets are global and your portfolio should be too.

Two resources for your consideration:

  • Use the query tool on the Dorsey Wright site to evaluate the list of ADRs that we follow (record count is 720 before you narrow it down by any further criteria, such as technical attribute).

query

  • Consider using our Systematic Relative Strength International Portfolio.  This portfolio has a 10+ year track record that we are very proud of.  We evaluate a broad investment universe of ADRs and own 30-40 ADRs in the portfolio.  Buy and sell decisions are determined by relative strength rank.  E-mail andyh@dorseymm.com to receive the fact sheet and see the list of firms where this strategy is available.

Dorsey, Wright & Associates, LLC, a Nasdaq Company, is a registered investment advisory firm.  Neither the information within this presentation, nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products. This article does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.  The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities.

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