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Linser Targets ADRs/GDRs for Safest International Investments

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Investors today have the possibility to embrace a range of different international investments in many parts of the globe through a plethora of mutual funds and ETFs. However,  anyone who wants to get direct exposure to individual securities from different countries, the best course of action, according to Eric Linser, private wealth manager at Avant-Garde Advisors in San Francisco, is through depositary receipts.

There are currently around 3,500 ADRs (American Depositary Receipts) and GDRs (Global Depositary Receipts) representing anywhere between $750 billion and $900 billion. They offer investors a safe, easy and efficient way to gain access to some excellent companies around the world, Linser said.

“Companies issuing depositary receipts have to provide a different level of information and are bound by more stringent filing requirements, since they’re listed in the U.S., which means it’s that much easier for investors here to invest in foreign-owned businesses in a way that they’re accustomed to,” he said. “I think this may be lost on a few people but because depositary receipts are trading in the U.S., you’re getting the same trading hours and settlements that you’re used to, and you don’t have to deal with unfamiliar market practices, surcharges and other restrictions and obstacles that you’d have to deal with by investing directly in international securities.”

As an independent financial advisor, Linser – whose client base averages between $800,000 to $1 million in investable assets—finds it much easier to go the ADR/GDR route when it comes to international investments. It’s not easy to avoid currency risks and other challenges that come with investing internationally when you’re working solo and don’t have local broker-dealers on the ground the way large mutual funds may have, so being able to tap into foreign companies in a hassle-free way is a huge advantage, he said.

Linser also said that depositary notes allow for a more targeted approach to more general market dynamics.

In Brazil, for example, most investment vehicles are heavily geared toward commodities and to traditionally dominant industries like mining, according to Linser. However, economic growth in Brazil, as in other emerging market nations, is now being driven by changing consumer tastes and spending patterns, so finding those kinds of companies in the ADR/GDR world allows investors to tap into those opportunities.

Linser cites Adidas as an example: “Soccer is the number one sport globally outside the U.S., and with the FIFA World Cup coming up next year in Brazil and then the 2016 Olympic Games, you get to tap into that consumer dynamic,” he said. The one drawback to the extensive and growing universe of depositary receipts is figuring out where to invest. Linser has an extensive quantitative database, and favors certain geographies and sectors, with technology high on his list. But beyond those parameters, a fair number of his investments are companies whose products and services he’s tried personally. They include Moleskine, a leather products manufacturer “which I decided to investigate further,” and Dr. Reddy’s, a maker of natural medicines from India which is rapidly gaining ground in the sale of generic drugs throughout the emerging markets. Linser has also invested in the depositary receipts of Baidu, China’s answer to Google.

While some good companies may choose not to issue ADRs or GDRs because of the onerous filing requirements and costs involved in listing in the U.S., Linser said there’s plenty of opportunity for his clients.

“The depository programs offered by the large banks are growing every year, so this is an area that I think offers great opportunity,” he said.


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