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FAQs Commonly asked questions concerning foreign investing:
1. How do I save money by trading foreign stocks through Euro Pacific? Just about every other U.S. brokerage firm that can even offer access to foreign securities trades those non-U.S. listed securities through domestic market makers on the U.S. over-the-counter market. For example, if the ordinary shares of stock X closed Jan 1 in Hong Kong at the U.S. dollar equivalent on $1.00 per share, the market for those ordinary shares Jan 2 in the U.S. might be 90 cents bid, 1.10 offer. Anyone buying shares of stock X in the U.S. would be forced to pay $1.10 per share. Even if the investor used a discount broker, he would still be paying a 10% premium to buy the stock. Buying 10,000 shares with a 6 dollar commission would cost $11,006. However, the real cost of the trade is not $6, but $1,006; $1,000 to the market maker and & $6 to the broker. When you invest through Euro Pacific, we would execute your buy order directly on the Hong Kong exchange, saving you the $1,000 dollar mark up charged by the market maker. We would charge a commission, but the net effect would be a substantial savings for the investor. See the Euro Pacific Advantage. 2. Why is it important for me to work with a brokerage firm that neither makes markets nor is involved in investment banking? One of the most overlooked problems in the brokerage industry is the conflict of interest that often exists between brokerage firms and their retail customers. When brokerage firms act as market makers in the securities they recommend, the brokerage firm is actually trading against the customer. Taking the opposite side of a customer's trade clearly results in potential conflicts of interest between the two parties. For example, a brokerage firm with a large position it wishes to unload might put out a "buy" recommendation on the stock. Brokerage firms have been known encourage their retail brokers to "push" particular stocks which they wish to unload from inventory by offering to "cut the broker in" on their hidden mark ups. When firms sell shares out of inventory they do not need to disclose their mark up. By structuring compensation this way retail brokers have a hidden incentive to recommend certain stocks to their clients; stocks which are not necessarily the ones which the broker feels are best suited for the client, but those which will result in a higher pay-out for the broker. Such practices are becoming less common in the brokerage industry, but they can be avoided with certainty by refraining from trading with brokerage firms that also make markets in those securities. Investment banking relationships also influence brokerage firms’ official opinions on particular stocks. As has become painfully evident in recent years, brokerage firms often recommend the stocks of companies with which they either have existing banking relationships, or companies with which they are pursuing future banking relationships. In addition, brokerage firms engaged in underwriting also have a vested interest in propping up the value of securities in industries similar to those in their syndicate calendars. This helps justify higher IPO prices and greater profits for the underwriter. Such conflicts of interest can only be avoided by not taking the advice of brokerage firms involved in the underwriting of securities. Since Euro Pacific neither makes markets in nor underwrites securities, our interests are better aligned with those of our clients. When we recommend stocks, our customers can be assured that such recommendations are always based on an unbiased assessment of the company, its potential, and its suitability as an investment given the particular objectives of each client. 3. Are foreign investments liquid? Yes. The stocks and bonds we recommend are all listed securities traded on the world's major exchanges. Of course, since securities differ with regard to average daily trading volume and float, the spreads between the bid and ask will be wider on some stocks than others. Alternately, if a specific limit price is sought, some securities might take longer to sell than others. 4. What about taxes? Our clearing firm, Pershing LLC, will provide 1099's with respect to interest earned, dividends received, and foreign taxes paid. No information will be provided with respect to Capital gains. Investors are encouraged to keep retain their statements and their trade confirmations. However, if records are misplaced, Euro Pacific can provide missing data upon request. 5. Is there a minimum investment required? In general, no. However, some foreign stocks have minimum lot sizes in which they trade. Also, commissions on smaller orders may be somewhat larger as a percentage depending on the size of the order. In most cases, investors can benefit from lower transaction costs by allowing Euro Pacific to group their small orders together as part of a larger block. A client would lose this advantage if he needed to buy or sell quickly and was not able to wait for a block to be formed. 6. Do you offer advice? Yes, Euro Pacific Capital is a full-service firm, and we are happy to provide investment advice to our clients including asset allocation, market timing, buy and sell levels, and stock and bond selection. 7. Can I make these investments in an IRA? Yes. 8. How often do I get statements? Statements will be mailed monthly for each month during which activity occurs. If there is no monthly activity, statements will be mailed quarterly. Individual confirmations are mailed separately for each transaction. 9. Can I invest in foreign securities through other brokers? It depends on the security, the location of the market and the broker. However, it is our contention that both our expertise and our cost-effectiveness are superior to what most other brokerage firms can provide with regard to foreign market investing. 10. How do your commissions compare to those charged by discount brokers? In some cases some discount brokers are able to buy some foreign stocks. However, it usually costs more to buy these securities through a discount brokerage firm than it does to buy them through Euro Pacific. Even if a discount firm quotes a lower commission per share to buy a particular stock they will often offer the stock at a price that is significantly higher than the price that Euro Pacific is able to offer the identical security. The investor ends up paying more. 11. Why not buy ADR's? Most of the stocks we recommend do not have ADR's. However, if an ADR is available, it is often still better to buy the ordinary shares. In most cases the ordinaries are more liquid, and by holding the ordinaries one can receive dividends and sales proceeds in foreign currency, which provides better diversification via a more true foreign exposure. This helps keep transaction costs down, and allows investors to sell a foreign security while maintaining exposure to the foreign currency. 12. Why not just buy foreign mutual funds? In some cases, foreign mutual funds make sense. If mutual funds are more appropriate, Euro Pacific will be able to help clients select the funds best suited to meet their objectives. However, in many cases mutual funds are insufficient. They are often overly diversified, hedged to the dollar, poorly managed and expensive to maintain. 13. How do I follow the current prices since most foreign shares are not listed in the local papers? Most of the delayed market quotes for the stocks we recommend are available through our website, www.europac.net. In addition, clients can see the closing quotes of a majority of the stocks we recommend by establishing online access to view their accounts. 14. Many foreign shares trade for one or two dollars per share, and in some cases only pennies per share. Are these low prices indicative of high risk? No. On many foreign exchanges, low stock prices are the norm, with the bluest of their blue chips trading below 5 dollars per share and stock splits occurring for stocks that trade in high single digits. Americans are simply used to higher stock prices as a matter of custom. 15. Is foreign investing risky? All investments contain some element of risk. However, foreign investing is not necessarily more risky than investing in the U.S. The hazards of investing in foreign stocks include political, currency, company- and market-specific risks. Remember, all these risks apply to U.S. investments as well, except for currency risk, which would be classified as inflation risk. A common mistake that many Americans make is ignoring the currency risk associated with holding only U.S. dollar-denominated assets. If the value of the dollar declines, prices for consumer goods will rise, particularly imports. Since so much of what Americans consume is imported, holding a diversified portfolio of foreign currency denominated assets helps hedge against inflation. |
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