In this chapter, Brandes explains options on how to purchase shares in a foreign company. Investor's wanting to buy foreign stocks can purchase ordinary foreign shares (ORDs), depositary receipts, foreign shares listed directly on a local exchange (typically only large multinationals do this) and/or packaged investments such as mutual funds or exchange traded funds ETFs.
Purchasing foreign stock exchange ORDs direct from a foreign broker is an option, although somewhat complicated. There are issues of which broker to deal with, currency conversion, custodianship, and where to accrue the foreign currency dividends. A simpler option is to look for over the counter (OTC) ORDs trading on e.g. the Nasdaq. Another option is to find a local brokerages that can custody, price, and payout ORD dividends (for a fee) in a local currency.
Brandes suggests an easier and more transparent way of buying foreign stocks is to purchase depositary receipts. There are American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs). These are similar structures except that the ADRs have been geared towards U.S. investors.
ADRs are listed on U.S. exchanges (e.g. NYSE), are priced and pay dividends in U.S. dollars. Unsponsored ADRs (created by banks without the consent of the underlying company) are not very popular with investors since company information and performance reports are not always readily available. Sponsored ADRs (most of the ADRs) are generally listed on the OTC market. Exchange-listed ADRs are also sponsored, listed on a major exchange and have the added benefit of requiring the companies to adhere to the exchanges reporting requirements.
ETFs represent a basket of securities and and trade like a single stock. ETFs are passivley managed. Some ETF strengths include ample liquidity, low expense ratios and tax benefits. Brandes lists some ETF weaknesses as the associated trading costs and the fact that many simply track indices, which can be heavily weighted towards larger cap stocks and stocks that have had undergone a tremendous increase in market cap.