Why do International Equity SMA Portfolios use ADR only?

Water Cooler Investing
#1

I work on fund and don’t really understand the logic behind only using ADRs in SMA portfolios. Does it just come down to commissions?

#2

Does it eliminate foreign exchange related headaches?

#3

Well, the execution is typically easier but ADRs have exposure to the underlying’s currency and carry a custody fee you don’t have with ORDs.

#4

Seems like laziness, or people want international exposure but don’t want money sitting in foreign currencies.

I agree that there doesn’t seem to be a lot of logic there. Most likely, you lose diversification by going ADR-only. Though perhaps they’ve done some risk/reward or liquidity analysis and concluded that going beyond ADRs provide little realizable value for smaller SMAs.