American depositary receipts have been around since the late 1920s and are, in essence, stocks that trade on the U.S. exchanges and represent a fixed number of shares in a corporation domiciled outside of the United States. These securities are generally issued and sponsored in the U.S. by a bank or brokerage firm.

Initially ADRs were spawned because of investor interest in buying shares of companies that were based in foreign countries as a way to simplify the currency translations. Thus, ADRs are denominated in U.S. dollars. Similar to an ADR is a global depositary receipt, or GDR, which is issued in more than one country, not just in the U.S., as a means of investing in foreign-based companies. GDRs are generally denominated in either U.S. dollars or euros.

The exchange-traded fund industry has made great strides in offering a variety of options for investors looking for diversified exposure to ADRs. These options range from developed countries, to emerging markets, to frontier markets, as well as an actively managed ADR strategy that is due to launch shortly from AdvisorShares. One thing to keep in mind is that different index providers sometimes disagree on the definition of a developed, emerging, or frontier market (country), and that said, it's important for the investor to dissect exactly what country exposure he is receiving in each ETF as opposed to blindly relying on labels like "developed markets" or "emerging markets."

Let's examine a few of the available options and their individual nuances.

Developed Markets

Depending on whether you refer to FTSE Group, MSCI, Russell Global, BNY Mellon, or another index provider, you will get slightly varied lists of the "Developed Countries" in the world because each group's individual criteria differs somewhat. That said, you will see replication on these lists, such as countries like the United Kingdom, Switzerland, Japan, Australia, France, and Germany. ETF options in the developed markets arena include:

PowerShares BLDRS Developed Markets 100 ADR Index Fund ( ADRD) tracks the BNY Mellon Developed Markets 100 ADR Index and has an "MSCI EAFE" perspective, with exposure to the United Kingdom, Japan, Switzerland, France, Spain, Germany, Australia, Netherlands, Italy, and others. PowerShares BLDRS Europe 100 ADR Index Fund ( ADRU) is based on the BLDRS Europe 100 ADR Index, and owns ADRs from the United Kingdom, Switzerland, France, Spain, Germany, Netherlands, Italy, Finland and interestingly Israel, even though most would not normally think of Israel being geographically part of Europe.

Claymore has an alternative in this category as well with Claymore/BNY Mellon Equal Weighted Euro-Pacific Leaders ( EEN), which owns ADRs and GDRs in the United Kingdom, Japan, New Zealand, Switzerland, France, Germany, Ireland, Australia, Spain, and Israel. EEN differs from ADRD and ADRU with its equal-weighted methodology, as ADRD and ADRU are traditional market-cap weighted indexes.

RevenueShares has an entrant in the Developed Markets arena -- RevenueShares ADR Fund ( RTR), although it is not pure developed markets exposure in the "MSCI EAFE" sense, and instead has EAFE exposure as well as exposure to Canada, South America, and China. So perhaps it qualifies as a developed/emerging markets hybrid. The ETF is based on the S&P ADR Index, and S&P's criteria for "developed" countries is perhaps more liberal and modernized than the other selection criteria groups previously listed, as this index has exposure to China and South America.

Emerging Markets

Like developed markets, emerging markets are subjective to criteria of the index provider, especially as countries such as China and India continue to grow at tremendous paces. The question becomes, when does one "graduate" from emerging to developed? That said, index providers such as FTSE Group and MSCI classify countries like Brazil, China, India, and Indonesia as emerging markets.

PowerShares BLDRS Asia 50 ADR Index ( ADRA) is basically an emerging/developed Markets hybrid, with exposure to Japan, Australia, China, South Korea, India, Taiwan, Hong Kong, Indonesia, and the Philippines and based on the BNY Mellon Asia 50 ADR Index. PowerShares BLDRS Emerging Markets 50 ADR Index ( ADRE) tracks the BNY Mellon Emerging Markets 50 ADR Index and has exposure to Brazil, China, South Korea, India, Mexico, Taiwan, Hong Kong, South Africa, and Russia.

One can't talk emerging markets without mentioning the term "BRIC." BRIC stands for well-known emerging market country leaders, Brazil, Russia, India, and China, and there are a few ADR-focused options in the BRIC space.

Claymore/BNY Mellon BRIC ( EEB) tracks the BNY Mellon BRIC Select ADR Index and as advertised, has portfolio exposure to Brazil, China, India, and Russia, in that order. For those looking to leverage their trading in the BRIC space, Direxion recently launched Daily BRIC Bull 2x Shares ( BRIL)and Daily BRIC Bear 2x Shares ( BRIS), and these ETFs are based on the same index as EEB.

Frontier Markets

Frontier markets are typically seen as having lower market capitalization and less liquidity than the developed emerging markets such as China, India, and Indonesia for instance. Index providers such as FTSE and MSCI classify countries such as Albania, Croatia, Bulgaria, Nigeria, Kenya, Slovenia, Vietnam, Romania, and Argentina as frontier markets. The Claymore/BNY Mellon Frontier Markets ( FRN) has exposure to a number of the standard frontier markets classified countries, but also owns Chile, Egypt, Poland, and Colombia which are seen by some index providers as emerging markets.

Actively Managed

Although not trading yet but likely to launch soon, AdvisorShares plans an actively managed ADR strategy in an ETF wrapper called "WCM/BNY Mellon Focused Growth ADR ETF", with the symbol AADR. Instead of tracking an index composed of ADRs, the ETF is managed by sub-advisor WCM Investment Management. WCM is an established manager that has been around since 1976 and manages more than $1 billion in client assets at the moment.

AADR will be benchmarked to the BNY Mellon Classic ADR Index and MSCI EAFE, with an investment goal of exceeding the returns of those benchmarks. AADR will invest in ETFs, individual ADRs that are in the BNY Mellon Classic Index, as well as swaps. According to the fund's prospectus, WCM "analyzes major trends in the global economy in order to identify those economic sectors and industries that are most likely to benefit. Typical themes incorporated in their investment process include demographics, global commerce, outsourcing, the growing global middle class, and the proliferation of technology." WCM then selects low-duration fixed- income ETFs, individual ADRs that meet its selection criteria, as well as swap contracts based on the ADRs. AADR resembles another AdvisorShares product that was launched last year, the DENT Tactical ETF in that it is an "ETF of ETFs" in a sense, offering active management packaged in an ETF.

While choosing individual ADRs can be somewhat daunting to the investor due to lack of information and scant domestic analyst coverage about companies that are not based in the U.S., ADR-based ETF strategies give the investor diversified exposure that can serve as the cornerstone of one's global allocation in a portfolio.

Weisbruch has no positions in the securities mentioned.

Paul Weisbruch is the VP of ETF/Index Sales/Trading at Street One Financial, graduating from the University of Pittsburgh, with an MBA from Villanova University. Before Street One, Paul was Director of Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007, serving in roles including ETF Floor Specialist on the PHLX, ETF/Derivatives Intelligence, and Algorithmic Trading. Paul has been quoted in ETF industry publications including Morningstar, Traders Magazine, and Index Universe. He holds his Series 4, 6, 7, 55, 63, and 65 licenses.

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