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International Equity ADR

Strategy Overview

River Road’s International Equity ADR Strategy seeks to invest in high quality companies with improving fundamentals, trading at attractive valuations. The stock selection process is complemented by a risk averse approach that employs balanced diversification and a structured sell discipline.


The International Equity ADR Portfolio’s investment universe consists of non-U.S. companies trading as ADRs, or otherwise traded in the United States, with minimum market capitalizations of $3 billion and average daily liquidity of $5 million (including both ADR and local market liquidity).

Investment Objective

The International Equity ADR Strategy seeks to outperform the MSCI EAFE benchmark by 200 bps gross of fees annualized over a market cycle.

Investment Process

The investment process proceeds through four stages:

I. Idea Generation

New investment candidates for the Strategy are determined through a series of proprietary quantitative screens.

  • Initially, the Strategy’s investment universe is established from companies with minimum market caps of $3 billion and average daily liquidity of $5 million (including both ADR and local market liquidity).
  • Next, we seek to identify companies with fundamental improvement including increasing sales, expanding operating profit margin, and improving returns on capital.
  • Finally, we seek to identify high quality companies. Based on a multi-factor ranking system, we assign a comprehensive quality score to each stock on the Focus List, which helps us identify the most attractive potential candidates for further research.

Additionally, we maintain a formal watch list from which new investments can be sourced.

II. Security Analysis

River Road builds portfolios in house, from the bottom up, making security-specific research central to our process. At the core of River Road’s Absolute Value® approach is a systematic method for assessing the ‘risk-to-reward’ characteristics of an investment. The goal of the research process is to formulate two outputs from which an investment decision is made – conviction rating (risk) and discount to value (reward). These two factors along with the breadth of opportunity in the investment universe not only determine whether the stock qualifies for investment, but also guide how the stock should be sized within a portfolio.

Conviction Rating

The conviction assessment ranks each of the critical criteria, listed below, on a scale of 1 (highest/best) to 5 (lowest/worst), which are then aggregated into an overall conviction rating.

  • Attractive business model: Understandable, predictable, and sustainable; high returns on invested capital; and reasonable growth prospects
  • Fundamental improvement: Increasing sales; expanding operating profit margin; and improving returns on capital
  • Valuation: Confidence in forecast assumptions
  • Financial strength: Liquidity and leverage; hidden assets; and free cash flow yield
  • Shareholder orientation: Significant insider ownership/insider buying; opportunistic stock buybacks; accretive transactions; and debt reduction

Discount to Value

A stock’s discount to its assessed valuation is a proprietary measure that represents the expected upside or available reward within the valuation time horizon of a stock based on our fundamental approach to security valuation. A company’s market price must be 90% or less of our valuation to qualify for investment, with a preference for 85% or less.

III. Portfolio Construction

The Portfolio targets 45 to 60 holdings, with the actual number of holdings dependent on market conditions.

The Strategy employs a proprietary sizing model which considers the security’s discount to value, overall conviction, and breadth of opportunity in the Portfolio’s investment universe.

IV. Sell Discipline

We believe that the key difference between a losing strategy and a winning strategy is that losers make big mistakes and winners make small mistakes.

  • Our sell discipline is designed to help keep the inevitable individual mistakes from causing large, permanent loss of capital in the broader portfolio.
  • We do not average down on losing positions.


International Equity ADR Strategy Inception Date: January 1, 2014