ADRs & investing in UK stocks on Robinhood

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

Search for the likes of Greggs, BP or Unilever on your Robinhood app and they’ll duly appear, with the added label, ‘ADR’. In fact, all of the current bunch of UK stocks available through Robinhood will come with the same initialism. So, what does it mean and does it change anything for UK investors looking to invest in UK stocks?

American Depositary Receipts (ADRs) represent shares of non-US based companies, in this case UK-listed companies, and trade on US stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ.

More broadly, they offer a way for investors to buy and sell the shares of ex-US companies, in dollars and without dealing with the various intricacies of local stock markets.

Read more: What assets can I invest in?

US banks buy shares of a UK company and hold them in custody. The bank then issues ADRs to represent these shares, which allows investors to buy and sell them on the stock market just like US stocks. The ADRs are priced in dollars and if the underlying company pays a dividend, it is converted into dollars, making it even handier for investors already trading in US markets.

An ADR may represent a single foreign share, a fraction of a share, or a bundle of shares. A bank might divide or group foreign shares so the ADR price aligns more closely with typical prices on US stock exchanges.

The overall aim is to remove any barriers that cross-border investing might present, especially for US investors. And, while so far it’s all been about making life easier for investors used to dollars and US markets, ADRs benefit the original companies underneath them by giving them access to a wider potential investor base and increasing liquidity.

Some brokerage firms and investment platforms only offer ADRs because they primarily serve US investors. It makes offering foreign stocks much simpler as both investors and the brokerage are already familiar with US exchanges and follow US regulations.

Fees attached to ADRs

Some banks require investors who hold ADRs to pay periodic services fees (sometimes called custody fees), typically $0.01 to $0.03 per share. If you buy a share from a company that’s based outside the US with Robinhood, you can find information about any ADR fees that may apply on the website of the bank issuing the ADR (you’ll find it in the blurb below the stock chart).

Exchange rate fluctuations

If the currency in the issuing company’s country drops relative to the US dollar, that could affect the value of your holding.

Mind the information gap

Not all non-US companies provide shareholders with the same type of information that US companies are required to do, and language barriers can make it difficult to access the information that is available.

Over-the-counter (OTC) ADRs

Some ADRs trade on the OTC market - a decentralised market where securities not listed on major exchanges are traded. You’ll usually find ‘unsponsored’ ADRs here, which typically means they’ve been issued without involving the underlying company. The opposite, ‘sponsored ADRs’, are given the stamp of approval by the original company.

OTC markets are often less liquid, which may make finding a buyer or seller a bit more difficult. They also need to meet fewer regulations and reporting requirements so it might be harder to research OTC securities in general.

Important information

When you invest your capital is at risk. Past performance is not a reliable guide to future returns. Your investments and the income you receive from them may go down as well as up so you may get back less than you invest.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice.