Definition
The term holding company depository receipt refers to a portfolio of stocks that are traded as one security. Holding company depository receipts allow investors to conduct a single transaction to purchase or sell a fixed portfolio of stocks in a specific sector of the economy or industry.
Explanation
Holding company depository receipts (HOLDR) is an investment vehicle created by Merrill Lynch back in 1998. HOLDRs are a basket of stocks that are sold as a single security. Shares of a HOLDR are traded on the American Stock Exchange, where investors can purchase or sell these securities in multiples of 100 shares.
Individuals can choose from a variety of HOLDRs, allowing them to invest in specific sectors of the economy or industries. Each share of a HOLDR represents ownership in the HOLDR's stocks, which means the price of the HOLDR will fluctuate with the value of the underlying assets.
Unlike a mutual fund, which may purchase and sell a variety of common stock, a HOLDR's basket of stock remains fixed over time, and typically consists of between 10 and 20 securities of different companies. This structure offers individuals the opportunity to invest in a relatively narrow selection of stocks, thereby enjoying the lower risk associated with diversification. Since the composition of the HOLDR remains fixed over time, the fees associated with these investments is lower than those of a mutual fund.
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