The world of investing is littered with acronyms. Two of the most prominent are ETFs for "exchanged-traded funds" and ADR for "American depositary receipts" -- or shares of foreign companies that are listed on a U.S. exchange.
Leave it to savvy ETF sponsors to marry those acronyms: There are some ETFs on the market today that explicitly focus on ADRs. While some of these funds are often overshadowed by more traditional developed and emerging markets ETFs, some merit consideration for investors looking for international exposure.
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With that, here are three ADR ETFs your broker probably forgot to tell you about:
AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF (NYSE:AADR) As its name implies, the WCM/BNY Mellon Focused Growth ADR ETF seeks to deliver returns in excess of the BNY Mellon Classic ADR Index, but this actively managed ETF also looks to beat the MSCI EAFE Index.
The management team behind AADR looks to accomplish index-beating returns through several interesting factors. For starters, AADR is a highly concentrated ETF, meaning it generally holds just 20 to 30 stocks (currently about 30). However, that does not mean the fund is excessively weighted to a small number of its holdings. For example, Taiwan Semiconductor is AADR's largest constituent with a weight of 5.57 percent.
AADR focuses mainly on the consumer staples, discretionary, health care and technology sectors with a bias towards those companies that have wide moats, highly recognizable brands and a reputation for sound management. In addition to Taiwan Semiconductor, other top holdings include Core Laboratories (NYSE:CLB), Potash Corp. (NYSE:POT) and Lazard (NYSE:LAZ).
Critics have some ammunition with AADR. As an actively managed fund, its 1.25 percent expense ratio is high in the ETF world. Additionally, the fund is small by assets under management and thinly traded. Focusing on those factors means ignoring the fact that AADR has surged 34.5 percent since its July 2010 debut, a performance that easily tops that of the iShares MSCI EAFE Index Fund (NYSE:EFA).
BLDRS Developed Markets 100 ADR Index Fund (NASDAQ:ADRD) The BLDRS Developed Markets 100 ADR Index Fund, issued by PowerShares, focuses on developed market stocks, in this case nearly 100 of them, and is concentrated in its own right. In the case of ADRD, it is heavily concentrated at the country level where the U.K. and Japan combine for over 52 percent of the ETF's weight. Switzerland is the third-largest country exposure at 9.24 percent.
On the upside, ADRD features no exposure to Italy or Greece, and Spain accounts for just 4.71 percent of the total country weight. Financials are by far the largest sector weight in ADRD at over 24 percent. Health care is next at almost 16 percent and three European pharmaceuticals giants - Novartis (NYSE:NVS), GlaxoSmithKline (NYSE:GSK) and Sanofi (NYSE:SNY) - are found among the ETF's top-10 holdings.
Other top-10 holdings include HSBC (NYSE:HBC), BP (NYSE:BP) and Royal Dutch Shell (NYSE: RDS-A). Like AADR, ADRD is small given its age (just $46.4 million in assets since a November 2002 debut). Not surprisingly, ADRD's Europe exposure has been problematic as the fund is off 6.74 percent over the past two years. In the ETF's favor are a trailing 12-month dividend yield of 3.3 percent and a favorable valuation, including a price-to-book ratio of just 1.35, according to PowerShares data.
Guggenheim BRIC ETF (NYSE:EEB) Advertising a focus on the BRIC quartet, EEB is home to some of the most familiar emerging markets stocks that trade in the U.S. such as China Mobile (NYSE:CHL), Vale (NYSE:VALE), Petrobras (NYSE:PBR) and Cnooc (NYSE:CEO). That probably is not a good thing at the moment given the various headwinds facing Brazilian, Chinese and Indian equities.
That is a good segue to the next point about EEB. This is not a criticism, but investors should note just how much BRIC they get with this ETF. Not much in terms of India and Russia, which combine for less than 12 percent of the ETF's weight. EEB is dominated by Brazil, which accounts for over 50 percent of the fund's weight. Six Brazilian issues are found among EEB's top-10 holdings.
It is EEB's Brazilian exposure that explains why the fund is off 3.51 percent in the past month. Additionally, this is a volatile ETF. EEB's allocates almost 44 percent of its weight to energy and bank stocks, giving it a beta of 1.07. EEB's standard deviation of 24.16 percent is more than 200 basis points higher than that of the MSCI Emerging Markets Index, according to Guggenheim data.
That may sound like bad news for the moment, but EEB offers utility to investors. In the event of a Brazil rebound, EEB could prove to be a conservative alternative to an all-in bet on a Brazilian stock or ETF focused solely on that country.
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