ADR, OTC non-US stocks

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katon
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Joined: Thu Jul 14, 2016 2:59 am

ADR, OTC non-US stocks

Post by katon » Mon Nov 13, 2017 6:04 am

Hi,

I am interested in dividend paying stocks and i am a non-US investor, based in the middle east.
I see that there are lot of interesting non-US stocks that have ADR and some of them in the OTC market : examples like AIQUF , LRLCY ,
Is it more convenient to own direct stocks or is also okey to own these OTC stocks ? I mean that OTC are not like NYSE stocks..

For me is simpler to buy ADRs but i understand that there are some important disadvantages.

thanks

Caduceus
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Re: ADR, OTC non-US stocks

Post by Caduceus » Mon Nov 13, 2017 6:14 am

If you are a non-US investor, why is it simpler for you to purchase ADRs? It is hard to generalize. Some ADRs are more liquid than their OTC counterparts, for instance.

But I can't think of a reason why, if you were trading through a non-US broker, and settling in your currency, that there would be any reason to use ADRs.

katon
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Re: ADR, OTC non-US stocks

Post by katon » Mon Nov 13, 2017 6:53 am

this is because there are higher fees when i buy through europe than if i buy through US.
I am based in Israel.

So for example LRLCY , why is traded on OTC market instead of NYSE ?

Valuethinker
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Re: ADR, OTC non-US stocks

Post by Valuethinker » Mon Nov 13, 2017 7:30 am

katon wrote:
Mon Nov 13, 2017 6:53 am
this is because there are higher fees when i buy through europe than if i buy through US.
I am based in Israel.

So for example LRLCY , why is traded on OTC market instead of NYSE ?
OTC is usually a warning that:

- company does not meet NYSE standards in terms of corporate governance, liquidity of shares or accounting history (as examples)

- stock is not likely to be liquid

- risk is high

Caduceus
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Re: ADR, OTC non-US stocks

Post by Caduceus » Mon Nov 13, 2017 7:50 am

It is actually quite common for foreign companies, even some big ones, to trade on the OTC markets instead of on the NYSE. There's an entire list of them on the OTC markets website and you should be able to find it easily. These companies don't fall into the category Valuethinker talks about; it's just that they don't see a need to pay the listing fees and abide by the onerous regulatory regime of the NYSE when the people who want to own their stocks can easily buy them OTC.

So, if your question is whether buying an OTC stock (like Samsung), or an OTC ADR (like L'Oreal) is "safe," it's safe in the sense that, yes, you do own a direct interest in the position. The fact that it trades OTC doesn't affect this interest, and short of transactional costs, the price of OTC position (if traded under a different ticker symbol and currency) will track the price of the stock in its home exchange.

Just remember that when you buy a foreign stock, you are taking on currency risk too. E.g. if your foreign position has a fundamental gain of 10% in its home currency, but that currency depreciates 10% relative to your own, your net gain is 0%.

Also remember that foreign stocks are often subject to tax withholding. You have to ask your broker how they will handle this.

All in all, it might be easier to just hold a diversified index fund, unless you feel very strongly about stocks.

Google the threads on Bogleheads that talk about investing in Ireland-domiciled Vanguard funds. I think they would work well for your situation.

katon
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Re: ADR, OTC non-US stocks

Post by katon » Mon Nov 13, 2017 8:05 am

I understand, but please see this list of companies:

there are huge and very economically based companies:

https://www.otcmarkets.com/research/otcqx-company-list

katon
Posts: 19
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Re: ADR, OTC non-US stocks

Post by katon » Mon Nov 13, 2017 9:26 am

Caduceus wrote:
Mon Nov 13, 2017 7:50 am
It is actually quite common for foreign companies, even some big ones, to trade on the OTC markets instead of on the NYSE. There's an entire list of them on the OTC markets website and you should be able to find it easily. These companies don't fall into the category Valuethinker talks about; it's just that they don't see a need to pay the listing fees and abide by the onerous regulatory regime of the NYSE when the people who want to own their stocks can easily buy them OTC.

So, if your question is whether buying an OTC stock (like Samsung), or an OTC ADR (like L'Oreal) is "safe," it's safe in the sense that, yes, you do own a direct interest in the position. The fact that it trades OTC doesn't affect this interest, and short of transactional costs, the price of OTC position (if traded under a different ticker symbol and currency) will track the price of the stock in its home exchange.

Just remember that when you buy a foreign stock, you are taking on currency risk too. E.g. if your foreign position has a fundamental gain of 10% in its home currency, but that currency depreciates 10% relative to your own, your net gain is 0%.

Also remember that foreign stocks are often subject to tax withholding. You have to ask your broker how they will handle this.

All in all, it might be easier to just hold a diversified index fund, unless you feel very strongly about stocks.

Google the threads on Bogleheads that talk about investing in Ireland-domiciled Vanguard funds. I think they would work well for your situation.
thank you very much. I am mainly interested in dividend growth stocks. This is the reason i prefer individual stocks. ETF are very good and i am looking for some interesting dividend ETFs from countries that are difficult to access...
The witholding tax is important... i know.

DetroitRick
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Re: ADR, OTC non-US stocks

Post by DetroitRick » Mon Nov 13, 2017 6:33 pm

I would echo everything Caduceus mentions in that post. Well said. ADR listing on OTC vs. major exchanges is certainly not necessarily indicative of lesser financial reporting standards or speculative performance. A few random examples of non-US blue chips trading here OTC that simply choose not to jump through the exchange regulatory hurdles: Nestle, Jardine Matheson, AP Moeller-Maersk. Look at each case individually, and look closely. We in the US tend to view our financial reporting standards and exchange requirements to be quite "golden", until we reflect back on Enron, Lehman, Kmart and a host of other fiascoes :D .

Look at ADR liquidity issues on a case-by-case basis too. I use ADR's in my own stock portfolio because I, for right now, choose not to trade directly on foreign exchanges. For me, ADR liquidity has not been detrimental to my performance (it could be, but just isn't for my particular positions). I have only one ADR holding where liquidity is moderately poor. But that is very easy to spot-check before purchase - just watch bid/ask spreads on multiple trading days. And also compare each ADR price trend with that of its underlying foreign security.

In the US market, many of our brokers now offer the ability to trade directly on foreign exchanges. This is a growing trend, and was pretty rare (and expensive) here a decade ago. Is there any semblance of that trend with brokers available to you in Israel? The caveat with this here in the US is that you will be moving in and out of foreign currency positions and commissions are a bit higher. But for the right critical mass, it is easy and economical to do in our market. So perhaps there are brokerage resources in Israel with similar arrangements?

Best of luck.

katon
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Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 1:14 am

DetroitRick wrote:
Mon Nov 13, 2017 6:33 pm
I would echo everything Caduceus mentions in that post. Well said. ADR listing on OTC vs. major exchanges is certainly not necessarily indicative of lesser financial reporting standards or speculative performance. A few random examples of non-US blue chips trading here OTC that simply choose not to jump through the exchange regulatory hurdles: Nestle, Jardine Matheson, AP Moeller-Maersk. Look at each case individually, and look closely. We in the US tend to view our financial reporting standards and exchange requirements to be quite "golden", until we reflect back on Enron, Lehman, Kmart and a host of other fiascoes :D .

Look at ADR liquidity issues on a case-by-case basis too. I use ADR's in my own stock portfolio because I, for right now, choose not to trade directly on foreign exchanges. For me, ADR liquidity has not been detrimental to my performance (it could be, but just isn't for my particular positions). I have only one ADR holding where liquidity is moderately poor. But that is very easy to spot-check before purchase - just watch bid/ask spreads on multiple trading days. And also compare each ADR price trend with that of its underlying foreign security.

In the US market, many of our brokers now offer the ability to trade directly on foreign exchanges. This is a growing trend, and was pretty rare (and expensive) here a decade ago. Is there any semblance of that trend with brokers available to you in Israel? The caveat with this here in the US is that you will be moving in and out of foreign currency positions and commissions are a bit higher. But for the right critical mass, it is easy and economical to do in our market. So perhaps there are brokerage resources in Israel with similar arrangements?

Best of luck.
Thanks for your answer DetroitRick. The situation in Israel is very similar than the one you explain. I use a standard broker (my ban itself). This is a relatively expensive broker. For US stocks i pay a price and for other countries like in Europe, the fees are higher. So this is the main issue. The second issue is as you said the liquidity, although i am interested in buy and hold and dividends (no trading) so i understand the liquidity is not our main issue.
The third issue is the withholding tax. I am checking this because when you own a company like Nestle i may pay Swiss, Us and then Israel tax.

I'm also checking other international brokerage options here in Israel as you explained. Until now i use my own bank because i buy and hold. The problem is that right know i would be interested starting to re-invest my dividends per month and the fees starts to hurt me. We don't have DRIP, only if i open a direct stock account on some specific stocks like "O" or "Air Liquide".

Are you also interested in non-US blue chips mainly for the dividends?

katon
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Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 1:25 am

Another question, if there is an ADR stock that has "less" liquidity. what is the main issue ?
That if i would like to sell in the future then i would not have a buyer?

Caduceus
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Re: ADR, OTC non-US stocks

Post by Caduceus » Tue Nov 14, 2017 3:14 am

katon wrote:
Tue Nov 14, 2017 1:25 am
Another question, if there is an ADR stock that has "less" liquidity. what is the main issue ?
That if i would like to sell in the future then i would not have a buyer?
It's unlikely that you will be unable to sell, but you may incur substantial bid-ask spreads if the stock is thinly traded. Remember that an ADR like Shell (RDS.A) or L'oreal, in your example, or some other stock quoted in a different ticker symbol OTC all refer ultimately to the same underlying position. They cannot diverge too widely in prices without arbitrage occurring.

I think you should worry more about the tax consequences, especially if you're interested in dividend stocks. ADRs are domiciled in the U.S., and I don't see any reason why anyone would intentionally purchase a stock and allow it to be subject to one more unnecessary U.S. tax bite when you can simply purchase it directly OTC.

Whatever commissions you pay upfront will pale in comparison to the ongoing tax in-efficiency of your setup.

katon
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Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 4:03 am

Caduceus wrote:
Tue Nov 14, 2017 3:14 am
katon wrote:
Tue Nov 14, 2017 1:25 am
Another question, if there is an ADR stock that has "less" liquidity. what is the main issue ?
That if i would like to sell in the future then i would not have a buyer?
It's unlikely that you will be unable to sell, but you may incur substantial bid-ask spreads if the stock is thinly traded. Remember that an ADR like Shell (RDS.A) or L'oreal, in your example, or some other stock quoted in a different ticker symbol OTC all refer ultimately to the same underlying position. They cannot diverge too widely in prices without arbitrage occurring.

I think you should worry more about the tax consequences, especially if you're interested in dividend stocks. ADRs are domiciled in the U.S., and I don't see any reason why anyone would intentionally purchase a stock and allow it to be subject to one more unnecessary U.S. tax bite when you can simply purchase it directly OTC.

Whatever commissions you pay upfront will pale in comparison to the ongoing tax in-efficiency of your setup.
What do you mean with the sentence in bold? I understand that ADR can be traded in NYSE or OTC ... i don't understand the difference between their tax policies. For example there are ADRs in NYSE and ADRs in OTC ... whats the difference from a tax point of view...?

Valuethinker
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Re: ADR, OTC non-US stocks

Post by Valuethinker » Tue Nov 14, 2017 4:09 am

Caduceus wrote:
Mon Nov 13, 2017 7:50 am
It is actually quite common for foreign companies, even some big ones, to trade on the OTC markets instead of on the NYSE. There's an entire list of them on the OTC markets website and you should be able to find it easily. These companies don't fall into the category Valuethinker talks about; it's just that they don't see a need to pay the listing fees and abide by the onerous regulatory regime of the NYSE when the people who want to own their stocks can easily buy them OTC.

So, if your question is whether buying an OTC stock (like Samsung), or an OTC ADR (like L'Oreal) is "safe," it's safe in the sense that, yes, you do own a direct interest in the position. The fact that it trades OTC doesn't affect this interest, and short of transactional costs, the price of OTC position (if traded under a different ticker symbol and currency) will track the price of the stock in its home exchange.
Do you get hit by Sarbanes Oxley (SOX compliant) as a foreign company if you do this? That would be a significant dissuasion?
Just remember that when you buy a foreign stock, you are taking on currency risk too. E.g. if your foreign position has a fundamental gain of 10% in its home currency, but that currency depreciates 10% relative to your own, your net gain is 0%.

Also remember that foreign stocks are often subject to tax withholding. You have to ask your broker how they will handle this.

All in all, it might be easier to just hold a diversified index fund, unless you feel very strongly about stocks.

Google the threads on Bogleheads that talk about investing in Ireland-domiciled Vanguard funds. I think they would work well for your situation.
Thank you, that is interesting to know. There are somewhat similar arrangements on London Stock Exchange*

The SEC was investigation Chinese companies which used shell reversals to get on NASDAQ (a few years ago). They were not quality companies..


* you have Full listed stocks and there is Premium and Standard listing. There are a lot of companies which don't meet the Premium rules: e.g. 25% freely traded, etc.

In fact, Saudi Aramco, if it floats on London SE, would only have 5-10% of shares freely traded. So they actually created a new listing category for it Premium star (*) ;-).

The junior list on the LSE is the Alternative Investment Market (AIM). The same standard of Listing Rules and due diligence does not apply. Although there are some good companies on AIM (ASOS - online fashion - in particular-- multi billion dollar market cap) there are a lot of thinly traded ones, and some quite speculative ones.

Valuethinker
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Re: ADR, OTC non-US stocks

Post by Valuethinker » Tue Nov 14, 2017 4:11 am

katon wrote:
Tue Nov 14, 2017 1:25 am
Another question, if there is an ADR stock that has "less" liquidity. what is the main issue ?
That if i would like to sell in the future then i would not have a buyer?
As per Caduceus - bid-ask spread can be wide.

You also want to investigate US estate tax. That's a significant risk for an offshore investor. We had to file for a family member (pay an accounting firm to do a US tax return) even though the amount at death did not trigger US estate taxes.

Caduceus
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Re: ADR, OTC non-US stocks

Post by Caduceus » Tue Nov 14, 2017 4:24 am

Think about it like a ship that's taxed on every port of call that it passes through. L'oreal is a French company, so it's subject to the French rules on dividend and capital gains taxes and tax withholding. This applies whether you're an American or an Israeli investing in L'oreal. So France gets the first bite at the tax apple. Israel may or may not want to tax your investment in L'oreal. You will have to research how your country treats foreign investments, if they will give you a tax credit against tax paid, if taxes are charged, if at all, on foreign dividends/capital gains, etc. So Israel gets another bite at the tax apple.

Now, in the above situation, L'oreal is only taxed at most twice, once by France, because L'oreal is domiciled in France, and another time by Israel, because you are a tax resident of that country. But if you buy an ADR, which is domiciled in the United States, the US gets a third bite at the tax apple. Your investment is now also subject to U.S. tax and tax withholding rules.

Specific tax treaties between Israel and France or Israel and the U.S., as well as between France and the U.S., will further change the analysis of how much tax is withheld or levied.

ADRs were designed to convenience US tax investors. They trade on U.S. exchanges in U.S. currency with dividends denominated in U.S. currency. I can't think of a reason that they would help non-U.S. investors.

I'm going to repeat my advice that I think you should read the forum for how to invest in diversified index funds, rather than stocks like L'oreal, specifically by using Vanguard ETFs that are domiciled in Ireland.

Unlike the U.S., Ireland has very generous provisions regarding foreign investors, so the fact that you own foreign companies via Ireland does not result in a huge third tax bite.

If you insist on going ahead with your plan, then just buy a small amount of foreign stock, wait through at least two dividend cycles, and then calculate what your true after-tax return is after France, U.S., and Israel have had their way with taxes.

katon
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Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 4:42 am

Caduceus wrote:
Tue Nov 14, 2017 4:24 am
Think about it like a ship that's taxed on every port of call that it passes through. L'oreal is a French company, so it's subject to the French rules on dividend and capital gains taxes and tax withholding. This applies whether you're an American or an Israeli investing in L'oreal. So France gets the first bite at the tax apple. Israel may or may not want to tax your investment in L'oreal. You will have to research how your country treats foreign investments, if they will give you a tax credit against tax paid, if taxes are charged, if at all, on foreign dividends/capital gains, etc. So Israel gets another bite at the tax apple.

Now, in the above situation, L'oreal is only taxed at most twice, once by France, because L'oreal is domiciled in France, and another time by Israel, because you are a tax resident of that country. But if you buy an ADR, which is domiciled in the United States, the US gets a third bite at the tax apple. Your investment is now also subject to U.S. tax and tax withholding rules.

Specific tax treaties between Israel and France or Israel and the U.S., as well as between France and the U.S., will further change the analysis of how much tax is withheld or levied.

ADRs were designed to convenience US tax investors. They trade on U.S. exchanges in U.S. currency with dividends denominated in U.S. currency. I can't think of a reason that they would help non-U.S. investors.

I'm going to repeat my advice that I think you should read the forum for how to invest in diversified index funds, rather than stocks like L'oreal, specifically by using Vanguard ETFs that are domiciled in Ireland.

Unlike the U.S., Ireland has very generous provisions regarding foreign investors, so the fact that you own foreign companies via Ireland does not result in a huge third tax bite.

If you insist on going ahead with your plan, then just buy a small amount of foreign stock, wait through at least two dividend cycles, and then calculate what your true after-tax return is after France, U.S., and Israel have had their way with taxes.
Thank you for the advice. I know the Irish ETFs. Is very interesting.

I probably will try what you say, buy a small amount of foreign stocks.

As i said, buying ADRs is relatively simpler and cheaper from Israel.

Do you know if you own an ADR and simultaneously own a direct stock from the underlying country ?
example : OR (EPA) and LRLCY (OTCMKTS)

Caduceus
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Re: ADR, OTC non-US stocks

Post by Caduceus » Tue Nov 14, 2017 4:57 am

katon wrote:
Tue Nov 14, 2017 4:42 am

Thank you for the advice. I know the Irish ETFs. Is very interesting.

I probably will try what you say, buy a small amount of foreign stocks.

As i said, buying ADRs is relatively simpler and cheaper from Israel.

Do you know if you own an ADR and simultaneously own a direct stock from the underlying country ?
example : OR (EPA) and LRLCY (OTCMKTS)
Buying ADRs might be simpler and cheaper in terms of the upfront commissions, but I am sure that it will not be cheaper in terms of your tax cost. I'm also curious why buying an ADR is cheaper than buying an OTC stock if you process through an Israeli broker. Is it because your broker charges you more to trade on the European exchanges than they do on American ones?

ADRs represent a direct interest in the underlying position, yes. They are not based on derivatives that track the price of the underlying stock or anything like that. So it doesn't make too much of a difference in terms of your "ownership" of that security, but the most direct form of ownership would obviously be to buy OR (EPA) directly.

Not all foreign stocks traded on the OTC markets come packaged as ADRs. The ones that do end with a "Y", I think. The ones that do not end with an "F'. If memory serves, an example of that would be something like Samsung, whose ticker symbol on the OTC market probably ends with F. From your perspective, you should be avoiding those that come packaged as ADRs. I confess I don't understand why you seem to want ADRs so badly!

katon
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Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 6:01 am

Caduceus wrote:
Tue Nov 14, 2017 4:57 am
katon wrote:
Tue Nov 14, 2017 4:42 am

Thank you for the advice. I know the Irish ETFs. Is very interesting.

I probably will try what you say, buy a small amount of foreign stocks.

As i said, buying ADRs is relatively simpler and cheaper from Israel.

Do you know if you own an ADR and simultaneously own a direct stock from the underlying country ?
example : OR (EPA) and LRLCY (OTCMKTS)
Buying ADRs might be simpler and cheaper in terms of the upfront commissions, but I am sure that it will not be cheaper in terms of your tax cost. I'm also curious why buying an ADR is cheaper than buying an OTC stock if you process through an Israeli broker. Is it because your broker charges you more to trade on the European exchanges than they do on American ones?

ADRs represent a direct interest in the underlying position, yes. They are not based on derivatives that track the price of the underlying stock or anything like that. So it doesn't make too much of a difference in terms of your "ownership" of that security, but the most direct form of ownership would obviously be to buy OR (EPA) directly.

Not all foreign stocks traded on the OTC markets come packaged as ADRs. The ones that do end with a "Y", I think. The ones that do not end with an "F'. If memory serves, an example of that would be something like Samsung, whose ticker symbol on the OTC market probably ends with F. From your perspective, you should be avoiding those that come packaged as ADRs. I confess I don't understand why you seem to want ADRs so badly!
Yes, the broker charges me more to trade on the European exchanges than they do on American ones. I don't understand what you mean ADR cheaper than OTC. I think in my case is the same because both are from the US. Am i right? Do you mean something else when you compared ADR with OTC?

Actually i don't want ADR. I much more prefer direct stocks like OR (EPA). The problem is the fee is high and some exchanges are not recognized by my broker, for example INDIA or CHINA.

One more time thank you and i appreciate our dialogue.

DetroitRick
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Re: ADR, OTC non-US stocks

Post by DetroitRick » Tue Nov 14, 2017 8:01 am

katon - going back to your original question, this article by Deutsche Bank might help by providing a nice summary of the 4 types of ADR programs. It may help clarify the range of regulatory requirements involved, and OTC vs. exchange listings.

https://www.adr.db.com/drweb/public/en/ ... /4233.html

To answer your question on whether dividends are part of my rationale for investing in foreign blue chips - no, not really. Just a natural by-product of the types of companies I'm investing in. But also, slightly more than 80% of all my investments are via funds and etf's. ADR's actually represent about 5% of my aggregate holdings, but will be heading a bit higher in the near future. Fund investing (mutual and etf) allows me to go further than my area of expertise in non-US markets otherwise would. My direct experience in those markets is getting rusty, thus my concentration in non-US "blue chips" - where I can most easily maintain familiarity with my holdings. As you mentioned, I am largely a buy-and-hold investor too.

katon
Posts: 19
Joined: Thu Jul 14, 2016 2:59 am

Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 8:15 am

DetroitRick wrote:
Tue Nov 14, 2017 8:01 am
katon - going back to your original question, this article by Deutsche Bank might help by providing a nice summary of the 4 types of ADR programs. It may help clarify the range of regulatory requirements involved, and OTC vs. exchange listings.

https://www.adr.db.com/drweb/public/en/ ... /4233.html

To answer your question on whether dividends are part of my rationale for investing in foreign blue chips - no, not really. Just a natural by-product of the types of companies I'm investing in. But also, slightly more than 80% of all my investments are via funds and etf's. ADR's actually represent about 5% of my aggregate holdings, but will be heading a bit higher in the near future. Fund investing (mutual and etf) allows me to go further than my area of expertise in non-US markets otherwise would. My direct experience in those markets is getting rusty, thus my concentration in non-US "blue chips" - where I can most easily maintain familiarity with my holdings. As you mentioned, I am largely a buy-and-hold investor too.
Very interesting. I am a big fan of dividends. In US and Canada i know lot of people invest almost only for the dividends.
It has a psychologically side (very important in investing), in my opinion. You wait for the long run when you receive income and can decide to reinvest it or use it to pay something.

Caduceus
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Re: ADR, OTC non-US stocks

Post by Caduceus » Tue Nov 14, 2017 10:24 am

katon wrote:
Tue Nov 14, 2017 6:01 am

I don't understand what you mean ADR cheaper than OTC. I think in my case is the same because both are from the US. Am i right? Do you mean something else when you compared ADR with OTC?

One more time thank you and i appreciate our dialogue.
I know what the issue is. You need to distinguish between investment terms that relate to the underlying stock, and investment terms that relate to the markets.

OTC just means that a stock trades "over the counter" - it is a form of exchanging (buying and selling) stocks. The NYSE is an exchange, just like the London Stock Exchange. These are markets. They are not important at all when assessing the tax impact of your investment. Just like you can buy carrots in a U.S. supermarket, and the same carrots in a London supermarket. Similarly, L'oreal can trade on the U.S. market, or in any other market the company chooses to list on. The choice of market might impose particular conditions. For instance, the Canadian stock exchanges requires you to buy in lots of 100, so you can't buy 17 shares of a stock, whether domestic or international, that traded in Toronto. But the market/exchange does not influence the tax cost.

Then you have to understand how the underlying stock is packaged. The stock can trade directly on a foreign market, like Samsung. Or it can be packaged within an ADR wrapper, like L'oreal, or Banco Santander (SAN). Note that SAN trades under exactly the same ticker symbol even when it is packaged as an ADR, because it is listed on the NYSE, and follows the naming conventions of that exchange.

So when you say "I think in my case is the same because both are from the US" that's not correct. OR (EPA) is a stock domiciled in France. You will own a stock that is domiciled in France, and that is subject to the French tax regime. If you buy LRCLY, you will own a stock that is domiciled in the U.S., because the underlying security (L'oreal) comes packaged in the form of an ADR, which is designed for U.S. investors, not non-US investors.

Distinguish between the market for a security, and the tax domicile of that security. The first refers to where it trades; the second refers to what it is. Another example. Shell trades in Amsterdam under RDSA symbol, and this structure of Shell stock is subject to tax withholding on dividends for foreign investors; Shell also trades in London under RDSB symbol, and this structure of Shell stock is not subject to tax withholding dividends for foreign investors. Shell also trades as RDS.B under the NYSE as an ADR with no dividend tax withholding, and oddly enough, re-invested shares are disbursed as RDS.A shares with tax withholding at source.

There are still many barriers to international stock holdings, though we have come very far.

Like I said, go research Israel's tax treaty with various countries if you insist on going down this path. Good luck! 8-)

And keep asking question on the forum as you do more research.

katon
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Joined: Thu Jul 14, 2016 2:59 am

Re: ADR, OTC non-US stocks

Post by katon » Tue Nov 14, 2017 12:51 pm

Caduceus wrote:
Tue Nov 14, 2017 10:24 am
katon wrote:
Tue Nov 14, 2017 6:01 am

I don't understand what you mean ADR cheaper than OTC. I think in my case is the same because both are from the US. Am i right? Do you mean something else when you compared ADR with OTC?

One more time thank you and i appreciate our dialogue.
I know what the issue is. You need to distinguish between investment terms that relate to the underlying stock, and investment terms that relate to the markets.

OTC just means that a stock trades "over the counter" - it is a form of exchanging (buying and selling) stocks. The NYSE is an exchange, just like the London Stock Exchange. These are markets. They are not important at all when assessing the tax impact of your investment. Just like you can buy carrots in a U.S. supermarket, and the same carrots in a London supermarket. Similarly, L'oreal can trade on the U.S. market, or in any other market the company chooses to list on. The choice of market might impose particular conditions. For instance, the Canadian stock exchanges requires you to buy in lots of 100, so you can't buy 17 shares of a stock, whether domestic or international, that traded in Toronto. But the market/exchange does not influence the tax cost.

Then you have to understand how the underlying stock is packaged. The stock can trade directly on a foreign market, like Samsung. Or it can be packaged within an ADR wrapper, like L'oreal, or Banco Santander (SAN). Note that SAN trades under exactly the same ticker symbol even when it is packaged as an ADR, because it is listed on the NYSE, and follows the naming conventions of that exchange.

So when you say "I think in my case is the same because both are from the US" that's not correct. OR (EPA) is a stock domiciled in France. You will own a stock that is domiciled in France, and that is subject to the French tax regime. If you buy LRCLY, you will own a stock that is domiciled in the U.S., because the underlying security (L'oreal) comes packaged in the form of an ADR, which is designed for U.S. investors, not non-US investors.

Distinguish between the market for a security, and the tax domicile of that security. The first refers to where it trades; the second refers to what it is. Another example. Shell trades in Amsterdam under RDSA symbol, and this structure of Shell stock is subject to tax withholding on dividends for foreign investors; Shell also trades in London under RDSB symbol, and this structure of Shell stock is not subject to tax withholding dividends for foreign investors. Shell also trades as RDS.B under the NYSE as an ADR with no dividend tax withholding, and oddly enough, re-invested shares are disbursed as RDS.A shares with tax withholding at source.

There are still many barriers to international stock holdings, though we have come very far.

Like I said, go research Israel's tax treaty with various countries if you insist on going down this path. Good luck! 8-)

And keep asking question on the forum as you do more research.
Thanks for the time you invested in the detailed answers.
Actually BAN is a stock i'm interested in. I love historical blue chip stocks. :)
The question is which stock will be the next blue chip dividend stock ?

Caduceus
Posts: 1455
Joined: Mon Sep 17, 2012 1:47 am

Re: ADR, OTC non-US stocks

Post by Caduceus » Tue Nov 14, 2017 4:09 pm

katon wrote:
Tue Nov 14, 2017 12:51 pm

Thanks for the time you invested in the detailed answers.
You are welcome. Good luck on your investing journey. :beer

Valuethinker
Posts: 33144
Joined: Fri May 11, 2007 11:07 am

Re: ADR, OTC non-US stocks

Post by Valuethinker » Tue Nov 14, 2017 5:47 pm

katon wrote:
Tue Nov 14, 2017 8:15 am
DetroitRick wrote:
Tue Nov 14, 2017 8:01 am
katon - going back to your original question, this article by Deutsche Bank might help by providing a nice summary of the 4 types of ADR programs. It may help clarify the range of regulatory requirements involved, and OTC vs. exchange listings.

https://www.adr.db.com/drweb/public/en/ ... /4233.html

To answer your question on whether dividends are part of my rationale for investing in foreign blue chips - no, not really. Just a natural by-product of the types of companies I'm investing in. But also, slightly more than 80% of all my investments are via funds and etf's. ADR's actually represent about 5% of my aggregate holdings, but will be heading a bit higher in the near future. Fund investing (mutual and etf) allows me to go further than my area of expertise in non-US markets otherwise would. My direct experience in those markets is getting rusty, thus my concentration in non-US "blue chips" - where I can most easily maintain familiarity with my holdings. As you mentioned, I am largely a buy-and-hold investor too.
Very interesting. I am a big fan of dividends. In US and Canada i know lot of people invest almost only for the dividends.
It has a psychologically side (very important in investing), in my opinion. You wait for the long run when you receive income and can decide to reinvest it or use it to pay something.

Depending on country you can pay a lot more tax that way.

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