Sometimes finding a winning foreign stock is as simple as reciting "A ... D ... R."
An ADR, short for American depositary receipt, offers U.S. investors the opportunity to diversify into international markets without the bother of purchasing shares on overseas exchanges. ADRs are issued by U.S. banks that hold actual shares of a foreign company's stock.
Every day, hundreds of major overseas-based companies -- including mega-cap names such as BP (BP - Get Report), Sony (SNE - Get Report) and Toyota (TM - Get Report) -- see their shares traded as ADRs on U.S. stock markets.
"It's easier to purchase ADRs than to shop on local exchanges," says Mark Coffelt, portfolio manager for the $75 million (EMCAX) Empiric Core Equity fund. "You don't have to deal with currencies or foreign intermediaries, and there is more than enough of a selection to choose from, with over 800 ADRs on the NYSE alone."Coffelt can be considered an expert on buying foreign stocks without ever leaving home. More than 60% of his go-anywhere, multi-cap fund is composed of ADRs, and it's a strategy that has served him especially well over the past five years as international stocks have soared past their U.S. counterparts. Coffelt's fund is up 13.7% year to date, over 4.5 percentage points more than the S&P 500, and the fund is up 22.6% annually over the past five years, besting the index by 8.3% per year on average.