Guide to Analysing Companies

Alternative investment
A less obvious way of retaining value than through securities
or bank deposits: for example, works of art, coins, stamps,
jewels, porcelain, vintage cars or gold. In the past, alternative
investments have often outperformed traditional investments
when inflation is high or rising. This is because, during such
times, value is seen to attach to real things, which become a
hedge against inflation.
American depositary receipt
A certificate issued in the United States in lieu of a foreign se-
curity. The underlying securities are lodged with a bank
abroad, and the American depositary receipts (adrs) are traded
in the United States as if they are a domestic stock. Since most
are owned by institutional investors, one adr may rep-
resent ten or more of the underlying foreign share. divi-
dends are paid in dollars, so adrs provide an easy way for US
investors to hold foreign securities without having to leave their
shores and without the headache of dealing in and out of
foreign currencies. Sponsored adrs are offered with the full
support of the company whose shares underlie them, so they
usually carry the full voting rights of a common share. Unspon-
sored adrs are issued opportunistically by a broker, dealer
or depository bank without the backing of the company and
may therefore have restricted rights.
A
AMERICAN DEPOSITARY RECEIPT
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An increasing number of companies now list their shares di-
rectly on US exchanges, but this is expensive. Furthermore, the
securities and exchange commission requires compa-
nies to report their earnings quarterly and to disclose more in-
formation than most are obliged to at home, so adrs remain a
popular way of attracting US investors. The idea of adrs has
since been extended to global depositary receipts, which are
traded over the counter in the United States and the euro-
markets, and European depositary receipts, which are traded
on recognised exchanges in Paris and Frankfurt.