ADRs versus foreign listed

So I randomly put together an international universe today just to run them through some of my models, and I was surprised to find that there are a total of 430 tickers in the All Fundamentals USA universe that are not ADRs and not USA or CAN. This versus 471 companies outside NA that are listed as ADRs. Nearly an even split.

I’m curious what makes a company list directly on a US exchange versus as an ADR. Is there anything fundamentally different that would affect our analysis? Is there some stricter criteria they have to meet for one versus the other? Does it indicate they have more business and therefor more exposure in the US versus less?

Some basic info here: https://en.wikipedia.org/wiki/Cross_listing#Cross_or_Multi-listing_v_Depository_Receipts

Interesting. I’d come away from that with the impression there’s no real difference. Maybe listing via an ADR means they’re simply choosing to outsource the process (via an investment bank) versus not…

More
Sponsored vs. Unsponsored ADR:

http://finance.zacks.com/sponsored-vs-unsponsored-adr-7667.html

“Lack of sponsorship means the foreign company may not provide the same financial information and support to investors. Also, unsponsored ADR shares can be very thinly traded, increasing the bid-ask spread transaction costs when buying or selling.”

I see. And apparently if it’s not OTC, then it’s sponsored. So the more useful filter is an exclusion of OTC shares for most purposes plus the normal liquidity checks, whether it’s an ADR or not.

P123 has a standard universe called NOOTC to exclude OTC…

Remember also that the Country code is, properly speaking, an indication of “Country of domicile”. There’s no rule that I’m aware of that prevents a company from being domiciled outside of the U.S. and then being barred entry to the U.S. markets simply because they’re “foreign”. The requirements for listing tend to be related to liquidity and reporting, not residency.

One of the more common things that people ask for is the ability to screen out Chinese companies. (I don’t blame anyone; I don’t trust the accounting myself.) And I give the general rule as:

Country("CHN")=0

But really it’s not that simple because of the way that the markets work. A couple of years ago there was an obvious Chinese company that was showing up around P123 filters for ADRs and Country. It turned out that they were a Shanghai-headquartered company doing business in mainland China that was incorporated in Bermuda and with primary shares on the NYSE. I’ve used the case in discussions as a situation where maybe, just maybe, there was some kind of taxation issue that forced (or at least encouraged) that kind of setup. Or maybe they were showing potential investors that they were better than those other Chinese companies: They were worthy of NYSE listing, so their accounting was of a higher quality. But to me it almost looked like they were jumping through hoops to fly under the radar on automated searches. (But that’s probably just that to a baker everything’s about bread.)

In fact, the situation is usually the reverse: Most foreign companies find SEC reporting requirements to be onerous. That’s why nearly every British company is a level 1 ADR traded OTC: All the stuff’s in English anyway, so why bother with the expense of listing requirements? If it’s good enough for Rolls Royce…

I would finally point out that filtering out by country, by ADR and by OTC will get you pretty much as far as we can get you. And don’t worry about filtering Rolls out: We don’t have fundamental information for level 1 ADRs anyway.

Good point. That is why I always look at the Snapshot (Summary) before I buy a stock to see if something like this is going on. I have caught several that way and did not buy them (in fact, I put them on my Restriction List for all ports).