Gain Exposure to Canada’s Largest Companies with ADRs

You can opt-out at any time.

Canada is the eleventh largest economy in the world and one of wealthiest in terms of per capita gross domestic product (GDP). Given its proximity to the United States, many investors are familiar with companies operating within its borders. Many investors may even be placing trades through TD Ameritrade, which is controlled by Toronto-Dominion Bank, or own shares in companies that few remember are based in Canada rather than the U.S.

American Depository Receipts — abbreviated ADRs — are U.S. traded stocks that represent a set number of shares in a foreign corporation. After being issued by a sponsoring bank or brokerage firm, these ADRs trade on U.S. stock exchanges in exactly the same way as domestic stocks. But, investors should keep in mind that the shares may be less liquid than their foreign counterparts, potentially creating a valuation gap between the two equal securities.

In this article, we’ll explore some of these Canadian ADRs and how investors can incorporate them into their portfolios in order to diversify internationally.

Manulife: Canada’s Largest ADR

Manulife Financial Corporation (NYSE: MFC), one of the top life insurance companies in the world domiciled in Canada, is also one of the country’s largest and most popular ADRs. Many U.S. investors may recognize the company better by its John Hancock division that’s focused on the region. With services ranging from life insurance to wealth management, the company generated over $10.7 billion in revenues and over $1.6 billion in net income during FY 2012.

The stock’s market capitalization stands at over $30 billion with a P/E ratio of 35x, as of July 2013, although the stock suffered heavy losses during the global financial crisis alongside many other financial firms. Investors can purchase the stock on the Toronto Stock Exchange under the ticker symbol MFC, on the New York Stock Exchange as an ADR under the same ticker, and on other international stock exchanges in places like Hong Kong and the Philippines.

Other Canadian ADRs & Alternatives

Canada houses a number of other globally recognized ADRs in addition to Manulife Financial, including many companies in the natural resource sector. For instance, Suncor Energy Inc. (NYSE: SU) is a $45.8 billion company focused on developing petroleum resources in Canada’s Athabasca oil sands, as well as exploiting natural gas opportunities. Such companies can play an important role in almost every international investor’s portfolio.

Here are just a few other Canadian ADRs to consider:

• Suncor Energy Inc. (NYSE: SU)
• Royal Bank of Canada (NYSE: RY)
• Magna International Inc. (NYSE: MGA)
• Toronto-Dominion Bank (NYSE: TD)
• Brookfield Asset Management Inc. (NYSE: BAM)

Investors looking for an alternative to Canadian ADRs may also want to consider Canadian exchange-traded funds (ETFs). While ADRs provide specific exposure to individual companies, ETFs are a great way to obtain diversified exposure across the country’s entire economy or specific subsets of companies. The most popular Canadian ETFs are the MSCI Canada Index Fund (NYSE: EWC) and the Canadian Energy Income ETF (NYSE: ENY).

Key Takeaway Points

• American Depository Receipts (ADRs) are a great way to gain exposure to a foreign corporation while still being able to trade on U.S. stock exchanges, although investors should be mindful of liquidity risks and potential tax implications .
• Investors can choose from a plethora of Canadian ADRs trading in the U.S. including Manulife Financial, Suncor Energy, and a number of others. But, Canada is probably best known for its diverse natural resources sector and income stocks.
• While ADRs provide specific exposure to individual stocks, investors may also consider purchasing Canadian ETFs in order to diversify more broadly into the country’s economy, with several different options also available.