Merrill Lynch has launched a proprietary index of American depositary receipts, the MLADR index, comprising 180 large, actively traded stocks, many of which its analysts cover.
The index is designed to present the opportunities that ADRs as an asset class offer to US domestic investors, says Sarah Franks, global strategy analyst at Merrill Lynch. “The goal of the index is to build a framework for investing in ADRs, bringing international stock ideas to domestic investors in a structured way,” she says.
The MLADR index, together with 10 sector sub-indexes, as well as European and non-European breakdowns, will allow a direct comparison with US sectors, says Franks.
To be included in the index, an ADR must trade on the New York or American Stock Exchange or Nasdaq and have an average daily trading volume of $1 million in the past 12 months. In addition, the market capitalization of the local listing on which the ADR is based must be in excess of $1 billion, and the local shares must have been traded for at least four and a half years. Merrill Lynch will reconstitute the index twice a year.
By adding selected ADRs to their portfolios, domestic investors can gain international exposure and broaden their stock universe, Franks says.
Merrill Lynch analyzes the portfolio holdings of US mutual funds once a quarter. Of the 150 mutual funds it sampled in the first quarter, 77% own ADRs. The average mutual fund owns four ADRs accounting for 3.5% of the fund’s total portfolio.