ADRs and buying foreign shares directly

Beyond BDRs, you can reach individual foreign companies in two main ways.

ADRs — the mirror image of a BDR

An ADR (American Depositary Receipt) is the US-market equivalent of a BDR: a certificate traded on a US exchange that represents shares of a non-US company. Many large Brazilian companies (for example major banks and energy firms) trade in New York as ADRs. For a Brazilian investing through a US account, ADRs are a convenient way to hold a foreign (including Brazilian) company in dollars without dealing with the company's home exchange directly.

Buying ordinary foreign shares

Through an international brokerage account (next chapter) you can also buy the ordinary shares themselves — Apple, Microsoft, a European or Asian listing — directly on the relevant market. You own the actual share, priced in that market's currency.

Trade-offs to weigh

• Currency. Both ADRs and direct shares expose you to the foreign currency. Returns must always be read in two parts: the asset's move and the exchange-rate move.
• Dividends and withholding. Foreign dividends are often subject to withholding tax at source in the company's country before the money reaches you. The US, for instance, withholds on dividends paid to foreign investors. This interacts with Brazilian taxation — covered in the final chapter.
• Single-stock risk. Owning one foreign company concentrates risk just as it would at home. For broad exposure with one trade, ETFs (next lesson) are usually more efficient.

The choice between a BDR, an ADR or a direct share often comes down to where your account is and which currency and tax treatment you want — not to which company you can reach.