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How To Invest In European Stocks


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How To Invest In European Stocks Via ADRs

invest in European stocksWith the European Central Bank (ECB) announcement of unlimited European government bond purchases to stem the European debt crisis, many investors are asking how to invest in European stocks to take advantage of a potential turnaround in European economies and stock markets.  There are a number of ways to invest in European stocks both in a focused manner and more broadly.

For investors that want to invest in European stocks in a focused manner, they can invest in American Depository Receipts (ADRs) that represent holdings in specific European stocks, which can be purchased on United States Stock Exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ stock market.  Additional ADRs based on specific European stocks can be purchased in the United States via the Pink Sheets stock quotation system.  Contrary to popular belief, the Pink Sheets stock quotation system does not only quote penny stocks.  In fact, some of the largest European companies list their ADRs on the Pink Sheets stock quotation system to gain exposure to United States equity markets without having to abide by the strict disclosure requirements set by the NYSE and NASDAQ stock markets.

How To Invest In European Stocks Via Funds

For investors that want to invest in European stocks more broadly, a number of mutual funds and Exchange Traded Funds (ETFs) are available to United States investors that focus on various European stock sectors.  Funds can be purchased that invest in European stocks that trade as part of indexes, such as the German DAX, European stock sectors, such as European technology companies, or individual European countries.

The advantage of investing in European stocks via funds versus making purchases of individual European stock ADRs is that holding funds spreads the investment risk out amongst a number of European stocks, so that if any one stock loses significant value, an investor’s portfolio will not experience a substantial negative impact.  Although this strategy of spreading the risk out across a number of European stocks also limits the potential of hitting a home run by holding a high perfoming European stock ADR, it is a worthwhile risk mitigation strategy, especially since a recovery in European stocks is speculative and may be derailed by unexpected economic or geopolitical events.

A good strategy regarding how invest in European stocks is to buy funds that invest in European stock sectors or countries that are most likely to recovery quickly and strongly, if a European turnaround unfolds in the wake of European Central Bank actions.

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