ADRs Walk and Talk Like S&P 500 Stocks, but Aren't
It seems elementary that a $2 trillion technology stock traded on the New York Stock Exchange (NYSE) would be in the S&P 500® Index (SPX). After all, the SPX consists of 500 of the largest companies in the U.S. stock market. However, there are exceptions, including when a company trades as an American Depositary Receipt (ADR). The S&P 500 doesn't include ADRs.
ADRs are negotiable securities but don't represent direct ownership in a company. Instead, they're certificates issued by a U.S. bank that correspond to shares of a non-U.S. company. ADRs are denominated in U.S. dollars, and if they pay dividends, the investor receives those in U.S. dollars.
The $2 trillion company alluded to above is Taiwan Semiconductor Manufacturing (TSM), the largest chip fabricator in the world and an ADR. It builds chips for Nvidia (NVDA) and many other U.S. semiconductor giants and trades on the NYSE but isn't held in portfolios that gain exposure to U.S. stocks solely through SPX index funds. With the shares up fourfold in three years through mid-2026, that may be an unpleasant surprise to some.
The same goes for anyone who hoped their portfolio had exposure to ASML (ASML), the Dutch multinational corporation that builds extreme ultraviolet lithography systems that allow chip makers to use light to print nanometer-scale transistors onto silicon. Shares almost tripled between the end of 2024 and mid-2026, but investors who only had exposure to U.S. stocks through S&P 500-related funds likely missed the rally.
Trading ADRs
Investors who weren't on board for these moves can't make those past gains now, but ADRs like ASML and TSM can be traded in the United States within a Schwab One® Brokerage Account. Keep in mind, buying ADRs doesn't mean owning the shares directly. Instead, it means holding the ADRs. Those who prefer direct ownership would need to buy shares directly in the international markets where they trade.
It's important to note that even though Taiwan Semiconductor and ASML don't directly affect the SPX, they can still influence overall sentiment and move the SPX via their earnings and other major headlines.
"These stocks are not impacting S&P 500 index-based investments, but obviously, if ASML or TSM are moving big one way or the other, that's going to affect the chip companies in the S&P 500 since they typically trade as a cohort," said Nathan Peterson, director of derivatives research and strategy for the Schwab Center for Financial Research.
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What are some well-known ADRs?
Not every non-U.S. company has an ADR, but besides ASML and TSM, other well-known ADRs include Arm Holdings (ARM), Alibaba Group (BABA), SK Hynix (SKHY), and Novartis (NVS). SK Hynix—one of the biggest memory chip makers in the world, based in South Korea—is a relative newcomer to U.S. trading, first appearing on the Nasdaq® in July 2026.
Investors considering an ADR should understand the advantages and disadvantages associated with trading such names.
Some advantages of ADRs:
- They give U.S. investors access to foreign equities without requiring trades on local exchanges or in local currencies.
- They are tradable during U.S. market sessions.
- Shareholders receive any dividends the underlying company pays, as the issuing financial institution collects dividend payments and converts them into U.S. dollars.
- ADRs listed on a U.S. exchange must register with the U.S. Securities and Exchange Commission (SEC) and meet its reporting requirements. This means investors potentially have access to more information than they would if they'd invested directly overseas.
Some disadvantages and risks of ADRs:
- Institutions that issue ADRs may charge quarterly or annual "ADR pass-through fees," including custody fees and fees for processing dividends and corporate actions.
- Unlike standard U.S. domestic companies, they're exempt under the SEC from filing earnings four times a year, though they must file annual reports.
- Liquidity for some ADRs can be low, which may affect bid/ask spreads.
- While rare, the bank offering the ADR may decide to terminate the ADR program for any number of reasons, including lack of interest. This could result in a requirement that the position either be liquidated or converted to the underlying foreign ordinary shares.
- Some ADRs trade only on the over-the-counter (OTC) market, and some foreign companies are available to U.S. investors as foreign ordinary shares traded OTC. OTC stocks often have lower liquidity and greater volatility.
How do ADRs work?
Here's the typical ADR trading process:
- Purchase of foreign shares: A U.S. bank buys shares of a foreign company listed on a foreign exchange.
- Issuance of ADRs: The bank issues ADRs representing those foreign shares to investors.
- Trading: ADRs trade on U.S. exchanges like any other U.S. stock.
- Converting dividends: The bank handles dividend payments, converting them into U.S. dollars and distributing them to ADR holders.
Is ADR performance tracked?
Besides tracking the individual stocks on the NYSE or Nasdaq, investors interested in the overall performance of the ADR market can follow the S&P ADR Composite Index. This index seeks to track all ADRs trading on the NYSE, NYSE American, and Nasdaq, and is subject to minimum size and liquidity requirements.
As of July 2026, the S&P ADR Composite Index was up 22% from a year earlier, according to S&P Global. That narrowly outpaced a 21% gain for the SPX over the same period.
However, the three-year ADR return through early August 2026 was 56% versus 73% for the S&P 500 over the same period. The S&P 500's heavy technology weighting and exposure to Magnificent Seven stocks over that time period likely pulled it ahead.
Even so, gains in the mid-2020s for names like Arm and TSM easily outpaced the broader ADR index, possibly rewarding investors who ventured beyond the S&P 500 to gain exposure to some tech heavyweights from other parts of the world.
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This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
All corporate names and market data shown are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.
Investing involves risk, including loss of principal.
Past performance is no guarantee of future results.
Some foreign securities, including ADRs and foreign securities traded on domestic exchanges, may be subject to additional foreign tax withholding requirements.
International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets.