Powerfully Performing ADRs

You know all about ADRs, right? No, I'm not talking about alternative dispute resolution or even artificial disc replacement. I'm referring to American depositary receipts, which are securities that give Americans easy access to shares of foreign companies.

Think about it. If a company is based in a foreign country and trades on a foreign exchange, in a different currency, it's not a simple matter for you or me to invest in it. Enter ADRs, which were first introduced by JPMorgan Chase in 1927. Today, more than 2,000 companies in more than 80 markets have depositary share plans, which give them access to the huge pool of American investors.

Indeed, ADRs make up more than 15% of the American stock market, with foreign stock investments in the U.S. topping $2 trillion, up from around $20 billion in 1980.

Technically, an ADR is a certificate from a U.S. bank that represents a set number of shares of a foreign stock. The ratio isn't always 1:1; many times a single ADR will represent, say, two shares of the foreign company. The ADR investor gets to invest with U.S. dollars and receives dividends in dollars, too -- less currency conversion fees, taxes, and other expenses.

Here are some ADRs that may be familiar:

Data: Motley Fool CAPS, Yahoo! Finance, ADR.com.
^Number of ADRs to number of foreign shares.

Many of these companies sport rather impressive performances over the past few years. That's because there's a lot of growth potential outside our borders. Many countries have the ability to grow much more quickly than the U.S., particularly if their economy is not yet as developed as our own.

Experts have long suggested that we'd do well to diversify with foreign investments. ADRs give you the chance to invest globally without the hassle of having to go to stock exchanges around the world to buy foreign stocks. So take a closer look at ADRs and see which ones belong in your portfolio.

There's only one way to earn 50% annual returns, and Tim Hanson knows what it is. You should, too.