International stocks and ADRs: how US investors own foreign shares

Most of the world's companies are not listed in the United States. A US investor who wants to own Toyota, Nestlé or Taiwan Semiconductor has three practical routes: buy a fund that holds foreign shares, buy an American depositary receipt (ADR) that trades in New York in dollars, or open an account that can trade on foreign exchanges directly. Each route adds two things a US stock does not have: a second currency, and a second set of market rules.

This guide covers both halves of the subject. The first half is about international stocks as an asset class: the split between developed and emerging markets, what more than two decades of fund prices show, and exactly how a currency move changes your return. The second half takes apart the ADR, the instrument most US investors use to buy individual foreign companies, using Taiwan Semiconductor's ADR (ticker TSM) as a worked example, including a premium to its home-market shares that the data shows is far from small.

Developed and emerging markets

Index providers split foreign stock markets into developed markets, such as Japan, the UK, continental Europe and Australia, and emerging markets, such as China, India, Taiwan and Brazil. The line is drawn on market size, liquidity, openness to foreign investors and the reliability of market rules, and it is revised from time to time. Two widely held US-listed funds represent the two groups: EFA (iShares MSCI EAFE, developed markets outside the US and Canada) and EEM (iShares MSCI Emerging Markets).

The chart has two very different halves.

From 2003 to 2007, emerging markets more than quadrupled while the S&P 500 rose 60%. After the 2009 low the order reversed. EFA's monthly close did not get back above its October 2007 level of $86.10 until May 2025, and EEM did not pass its October 2007 close of $55.73 until January 2026. That is more than 17 years below a previous peak, a reminder that diversifying abroad does not guarantee better returns in any given decade. It changes which decades you do well in. Diversification: why spreading your investments reduces risk and Correlation between asset classes: how it works and why it shifts explain why that can still lower a portfolio's risk.

These are price returns. Dividends are excluded, and the foreign funds have generally paid out a larger share of their return as dividends than SPY, so the chart overstates the gap somewhat.

Currency: the second return

When you own a foreign stock, you own two things: the company and the currency its shares are priced in. Your return in dollars combines both.

Currency moves are not small. In the Federal Reserve's monthly series, the euro rose from $0.85 in October 2000 to $1.58 in July 2008, an 85% gain for a US holder of euro assets on currency alone, and then fell to $0.99 by October 2022, a 37% loss from the peak. The yen went from 76.64 per dollar in October 2011 to 162.33 in July 2026, meaning a yen asset lost about 53% of its dollar value over that stretch even if its yen price never changed. The forex market explained: how currency trading works and The US dollar and exchange rates: indexes, drivers and earnings cover what moves exchange rates.

Currency-hedged international funds use forward contracts to remove most of the currency effect, leaving roughly the local-market return minus the cost of the hedge, which depends on the gap between US and foreign interest rates. Hedging removes the currency's losses and its gains alike.

How an ADR works

An ADR is a negotiable certificate issued by a US depositary bank that represents American depositary shares (ADSs), which in turn represent shares of a non-US company held in custody in the home country. Market participants use the terms ADR and ADS interchangeably. ADRs trade and pay dividends in dollars and settle through US systems, so the holder never has to deal in the foreign currency. The SEC's investor bulletin notes that the first ADR was created in 1927 and that more than 2,000 ADRs exist, representing companies from more than 70 countries.

Creation and cancellation. A broker that holds the ordinary shares delivers them to the depositary's custodian in the home country, and the depositary issues ADRs in the US. The process also runs in reverse: an ADR holder can surrender ADRs and receive the underlying shares. This two-way conversion is the same kind of arbitrage link that keeps an ETF near its NAV (How ETFs work: creation, redemption, NAV and the arbitrage band), and it is what normally keeps an ADR's price close to the dollar value of the shares it represents.

The ratio. An ADR can represent one share, several shares or a fraction of a share; the ratio lets the ADR trade at a price typical of US stocks. TSMC's 2024 annual report states that each ADS represents five TSMC common shares, lists Citibank N.A. as depositary and the NYSE as the market, and counts about 1.06 billion ADSs outstanding as of February 28, 2025.

Sponsored and unsponsored, Levels 1 to 3

A sponsored ADR is set up under an agreement between the foreign company and the depositary bank, which handles record-keeping, shareholder communications and dividends. An unsponsored ADR is created without the company's cooperation, often by a broker-dealer that wants a US trading market. All ADRs are registered with the SEC on Form F-6, which covers only the deposit agreement, not the company. The SEC's bulletin describes three levels:

For an investor, the level tells you how much the company has to disclose in the US. A Level 1 ADR has no company information on the SEC's EDGAR system; you rely on the company's home-country filings.

Fees and taxes

Depositary banks charge holders a custody or depositary services fee. Commonly it is subtracted from dividends before they reach you; for ADRs that pay no dividends, it is charged to brokers, who pass it on. The SEC's bulletin gives an example of $20 to $50 per 1,000 ADRs, or 2 to 5 cents per ADR, and notes that depositaries may charge other fees for dividend distribution, currency conversion and voting. The fees appear in the deposit agreement filed with Form F-6.

Dividends are also usually subject to foreign withholding tax in the company's home country. US taxpayers may be able to claim a foreign tax credit for foreign income taxes on income that is also taxed in the US, generally on IRS Form 1116, and the IRS notes that a credit is usually worth more than a deduction. Where a tax treaty sets a lower withholding rate, only the reduced amount qualifies. Withholding rates differ by country, so check the specific case.

A real example: TSM and 2330.TW

TSMC's ordinary shares trade in Taipei as 2330.TW, priced in New Taiwan dollars. Its ADRs trade on the NYSE as TSM. On October 29, 2026, using Finabase's daily closing data:

Across every trading day in October 2026 for which both closes were available, TSM's premium ranged from about 11% to 20%. Part of any same-day comparison is timing, because Taipei closes before New York opens, but a gap this large and this persistent means the conversion arbitrage was not closing it. How freely ordinary shares can be converted into ADRs is governed by the deposit agreement and local market rules. Our data does not tell us why the premium exists or whether it will last. It does tell an ADR buyer that the ADR is not necessarily a cheaper or more expensive way to own the same company: the two prices can move apart, and that gap is a risk of its own.

Pitfalls and limitations

Assuming the ADR price is the company's price. As TSM shows, an ADR can trade at a premium or discount to its home shares. Check the ratio and do the conversion.

Forgetting currency. A stock that does well in its local market can lose money for a US holder if the currency falls far enough.

Missing the fees. Depositary fees and foreign withholding reduce dividends; the net amount is what reaches your account.

Thin disclosure. Foreign companies follow home-country rules, and outside Form 20-F they generally disclose only what home rules require. Level 1 ADRs may have no US filings at all.

Home-country risk. Political, legal and economic conditions in the home market affect the company and the currency together.

Concentration inside "international." Emerging-market indices can be heavily weighted to a few countries and a few very large companies. Look at a fund's country weights before treating it as broadly diversified.

Ways to own foreign stocks compared

How Finabase does it

Finabase has symbol pages for ADRs and, for some markets, for the home listing too: TSM and 2330.TW can be opened side by side, and the USD/TWD rate has its own symbol page, so you can repeat the calculation above for yourself. The forex page lists 51 major, cross and emerging-market currency pairs. TSM gets every stock tab, including financials and options; Taipei, Hong Kong and mainland China listings hide the financials, valuation, earnings and options tabs. The indices page tracks world stock indices such as the FTSE 100, DAX, Nikkei 225 and Hang Seng, and international ETFs such as EFA and EEM have ordinary ETF symbol pages.

Finabase does not label ADRs, show their ratio or calculate their premium; nothing in the app treats an ADR differently from a US stock. The premium figures on this page are our arithmetic from Finabase's daily closing prices.

Frequently asked questions

What is an ADR?

An ADR, or American depositary receipt, is a certificate issued by a US bank that represents shares of a foreign company held in custody abroad. It trades in US dollars on a US exchange or over the counter, and pays dividends in dollars.

Is buying an ADR the same as buying the foreign shares?

Economically it is close, but not identical. The ADR is backed by the shares and can usually be converted into them, but it carries depositary fees and can trade at a premium or discount; TSM traded 11% to 20% above its Taipei shares in October 2026.

What do the ADR levels mean?

Level 1 ADRs trade over the counter and require no SEC reporting by the company. Level 2 ADRs list on a US exchange and the company files Form 20-F. Level 3 ADRs list and also let the company raise capital in the US.

How does currency affect international stock returns?

Your dollar return equals the local return combined with the change in the currency's value: (1 + local) × (1 + currency) − 1. An 8% local gain becomes 2.6% if the currency falls 5% against the dollar.

Are international stocks worth owning if the US has done better?

That depends on your goals; this guide doesn't make recommendations. The data shows leadership changes: emerging markets more than quadrupled from 2003 to 2007 while the S&P 500 rose 60%, and the US led by a wide margin after 2009.

Summary

International stocks add two return sources to a US portfolio, the foreign market and its currency, and the two combine multiplicatively. Since 2003 developed and emerging markets have trailed the US on price, after leading it by a wide margin from 2003 to 2007, and both took more than 17 years to regain their 2007 peaks. ADRs let US investors buy individual foreign companies in dollars: a depositary bank holds the shares, a ratio sets how many each ADR represents (five for TSM), and fees come out of dividends. Levels 1 to 3 tell you where the ADR trades and how much the company discloses in the US. Conversion normally keeps an ADR near the value of its shares, but TSM's 11–20% premium in October 2026 shows that the link can be loose, so check the ratio, the currency and the gap before treating an ADR as a stand-in for the home shares.