FOREIGN STOCKS ARE HOT: HERE'S HOW TO TRADE THEM

FOR more than a year, going global with your portfolio has meant going gangbusters—many international equity markets, in a reversal of recent history, outperformed U.S. stocks. This overseas overachievement may have you looking beyond your international funds and mulling some specific stocks beyond our borders.

- PRACTICAL PORTFOLIO BY DAVID MILSTEAD

Some of these trades, however, are simpler than others. Many non-U.S. companies have made things easy for investors by trading directly on the big U.S. exchanges. Other foreign stocks trade in the U.S., but they require investors to venture into what are called the over-the-counter markets. And some companies are homebodies: An American who wants to invest is going to have to dabble in a foreign stock exchange—that is, if their broker is willing and able to assist them.

If you want to leap in, you're far from alone: U.S. portfolio holdings of foreign stocks rose from $11.5 trillion in 2023 to $12.1 trillion in 2024, according to an annual survey of Americans' portfolio holdings conducted jointly by the U.S. Treasury and the Federal Reserve. Below, we'll walk you through the basics of buying stocks overseas, no passport required.

Buying the big names. It might be second nature to place a buy order on the New York Stock Exchange for Taiwan Semiconductor Manufacturing, drugmaker Novartis or auto giant Toyota. Technically, though, you're not buying the common shares of these companies. Instead, you're buying what are called American depositary receipts, or ADRs.

ADRs are about to celebrate their centennial. In 1927, JPMorgan created and launched the first-ever ADR for the U.K. retailer Selfridges. Today, the ADRs on major U.S. exchanges are “sponsored,” or backed by a bank that has contracted with a foreign company to acquire shares of their common stock. The ADR typically (but not always) represents one share of the company's common stock.

Because the ADR isn't actually a share, however, the ADR holder may not have the same rights at the company as a holder of a share of common stock. Only some ADRs give holders voting rights at the annual meeting, for example, and you might not have the same bankruptcy-protection rights, says Adam Cohn, the head of trading operations at online broker TradeStation.