Trading International Markets With ADRs & ETFs
Tracking and trading international markets can provide investors and traders with a wide range of tangible and intangible benefits.
For one, a global perspective on the markets can help investors and traders follow important narratives developing outside their home country. And as previously investigated by tastytrade, international exposure can also help diversify the portfolio.
In that spirit, it’s worth reviewing how international markets are performing at the outset of 2021. Year-to-date, several of the top-performing markets in 2021 include: Bermuda, Sweden, France and the United States—as highlighted in the list below.
2021 Year-to-Date Performance in Top-Performing Global Indices
- Bermuda, +27.7%
- Sweden, +17.8%
- France, +12.8%
- USA (S&P 500), +12.8%
- Netherlands, +12.3%
- Germany, +10.2%
- Korea, +7.8%
Interestingly, the Chinese market—after producing strong gains in 2020—has been mostly flat in 2021. The Shanghai Composite is down about 1% so far this year.
Widening the lens, it’s also helpful to review the top-performing stock markets over the last twelve months. Using that criteria to filter international markets, the countries listed below have produced the strongest gains.
Top-Performing Global Indices Over the Last 12 Months
- Korea, +63%
- Bermuda, +57%
- USA (Nasdaq) +57%
- India, +52%
- Brazil, +45%
- USA (S&P 500), +44%
- Japan, +43%
- Sweden, +41%
- Germany, +39%
- Australia, +30%
- China, +23%
When accessing global markets, investors and traders typically use three different avenues: trading directly on international exchanges, trading American Depository Receipts (ADRs), and trading international exchange-traded funds (ETFs).
Because the average brokerage account doesn’t allow direct access to international exchanges, investors and traders mostly utilize the latter two approaches when accessing exposure to global stocks, ETFs and indices. Many of these products also offer associated equity options.
ADRs, for their part, are certificates issued by U.S. financial institutions that represent a share of a foreign company’s stock. They’re traded just like domestic stocks on U.S.-based exchanges—meaning you don’t need a special brokerage account to access them.
International ETFs are typically designed to provide exposure to a particular region of the world, or a group of international companies with a similar profile.
For example, the iShares China Large Cap (FXI) is composed exclusively of large-cap companies with direct exposure to the Chinese economy. On the other hand, the iShares MSCI EAFE (EFA) is composed of large and mid-cap companies operating in a variety of developed countries around the world (excluding the U.S. and Canada).
Before getting active in global stocks and ETFs, it can be helpful to learn more about the size and scope of the international investing landscape. The two charts below provide context on the largest trading exchanges in the world, as well as the largest companies in the world as of February 2021, based on market capitalization.
For more information about trading international markets, readers are encouraged to review a past installment of Market Measures on the tastytrade financial network.
To follow everything moving the markets on a daily basis, TASTYTRADE LIVE—weekdays from 7 a.m. to 4 p.m. CST—is also recommended.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to email@example.com.