European stocks that trade on US exchanges drifted higher late Friday morning, with the S&P Europe Select ADR Index climbing 0.74% to 1,979.62. The index, which tracks American depositary receipts (ADRs) of major European companies, is now up 0.55% for the week so far.
ADRs are a way for US investors to buy shares of foreign companies without dealing with overseas exchanges or currency conversions. Each ADR represents a certain number of shares in the underlying company and trades on US markets like any other stock. This gives investors a real-time read on how European companies are being priced during the US trading session, even if the home-market shares in Europe closed hours earlier.
What drove the gains?
The index's rise was led by a few big winners. Trivago, the hotel-search platform, jumped 7.2%, while BioNTech, the German biotech known for its COVID-19 vaccine, gained 6.2%. Banco Santander, the Spanish banking giant, rose 2.9%.
On the other side, declines were smaller and more spread out. Cellectis, a French biotech, fell 4.2%, and Eni, the Italian energy major, slipped 1.2%. The overall picture suggests that investors were selectively buying European names rather than making broad bets.
The move comes amid a backdrop of mixed signals for European markets. Earlier this week, European stocks edged higher as banks and property shares led gains, while oil prices jumped to $94 and German yields stayed high, keeping some investors cautious.
Why ADRs matter for US investors
For everyday investors, ADRs offer a convenient way to diversify internationally without opening a foreign brokerage account. They also provide exposure to sectors that may be underrepresented in US markets, such as European pharmaceuticals, energy, and banking.
However, ADRs come with their own quirks. They can trade at a slight premium or discount to the home-market shares, and currency fluctuations can affect returns. When the dollar weakens, for example, ADRs often get a boost because the underlying foreign earnings are worth more in dollar terms. That dynamic may be at play here: the dollar slipped ahead of US data while the euro edged higher on mixed PMIs, which could have supported European ADRs.
What it means for investors
For investors holding European ADRs, Friday's move is a modest positive, but it's not a signal to chase gains. The index is up less than 1% on the day, and the weekly gain is just over half a percent. That's a mild uptick, not a breakout.
More important is the broader trend. European stocks have been volatile this year as investors weigh inflation, interest rates, and the health of the region's economy. While some sectors like banks have benefited from higher rates, others, such as real estate, have struggled. The US-listed shares of European energy giants have also been a focus, with BP and Shell leading gains at times.
For those considering adding European exposure, ADRs can be a useful tool, but it's wise to look beyond a single day's move. Pay attention to the underlying company's fundamentals, the economic outlook in Europe, and currency trends. As always, diversification and a long-term perspective are key.
Friday's trading is still ongoing, and the index could move further before the close. But for now, the drift higher suggests that investors are feeling slightly more optimistic about European equities, even if the gains are led by a handful of names.
