ADRs Outperform their Foreign Counterparts

June 17, 2002 ( - Over the past six years, American Depositary Receipts (ADRs) have outperformed their home equity markets by 83%, partly due to investor perceptions of good corporate governance and lower risk, research from Citibank shows.

These vehicles are typically viewed by investors as US securities and are moved by US market conditions, while their local country listing also exposes them to the influences of their home markets.

Between 1997 and May 2002, in US dollar terms, the average annual return of:

  • the 42 ADRs in the Bloomberg ADR Index was 12.8%
  • compared to an average of 5.1% for the respective home country indices
  • 6.7% for the US market.

Volume and Value

The ADRs in the Bloomberg index, which represent 22 countries, accounted for 55% of 2001 ADR trading value and 52% of trading volume. The ADRs outperformed their home market in every year during the period except 1998, the year of the global liquidity crisis, Citibank reported.

Citibank expects ADR trading volume during the first half of 2002 to be 15.5 billion shares, a decline of 4.9% from the first half of 2001.

ADR trading value for the first six months of the year is projected to be $294 billion, down 27% from last year’s mid-year level of $405 billion.

These declines are consistent with projected drops in mid-year US market volumes (net of ADRs) of 4.4% in shares traded, from 392 billion to 375 billion, and 26% in US dollar trading value from $12.4 trillion to $9.2 trillion, the Citibank report says.

An ADR is a certificate issued in the US in lieu of a foreign security. ADRs are traded in the US to all intents and purposes as if they were a domestic stock. Dividends are paid in US dollars, providing a way for US investors to purchase foreign stock without having to switch in and out of foreign currencies.