However, the quality of ETFs varies widely. All too many exist to tap into popular, but risky, themes and fads. So you need to be highly selective with your ETF holdings.

Here are six foreign ETFs we like:

ISHARES MSCI JAPAN INDEX FUND $9.31 (American Exchange symbol EWJ; buy or sell through a broker; us.ishares.com) is an exchange-traded fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index.

The fund’s top holdings include Toyota Motor, 4.5%; Mitsubishi UFJ Financial, 2.7%; Canon, 2.4%; Honda Motor, 2.3%; Sumitomo Mitsui Financial, 1.8%; Takeda Pharmaceutical, 1.7%; Mizuho Financial Group, 1.6%; Mitsubishi Corporation, 1.3%; NTT DoCoMo Inc., 1.3%; and Fanuc Corp., 1.2%.

The fund’s industry breakdown is as follows: Industrials, 20.2%; Consumer Discretionary, 19.2%; Financials, 17.1%; Information Technology, 12.2%; Materials, 7.2%; Health Care, 6.7%; Consumer Staples, 6.2%; Telecommunication Services, 4.5%; Utilities, 4.0%; and Energy, 1.8%.

iShares MSCI Japan Index Fund was launched on March 12, 1996. Its expense ratio is 0.54%.

Japan is still recovering from the March earthquake and tsunami, which slowed exports to major trading partners, including Europe and the U.S. The soaring yen is also hurting exports. Even so, we think Japan’s economy will rebound. That will benefit shares of high-quality Japanese companies.

iShares MSCI Japan Index Fund is a buy.

ISHARES MSCI EMERGING MARKETS INDEX FUND $41.04 (New York symbol EEM; buy or sell through brokers), is an exchange-traded fund that aims to track the MSCI Emerging Markets Index. Its geographic breakdown includes: China, 16.4%; South Korea, 14.7%; Brazil, 14.4%; Taiwan, 11.6%; South Africa, 7.9%: India, 7.4%; Russia, 6.4%; Mexico, 4.6%; Malaysia, 3.5%; and Indonesia, 3.0%.

iShares MSCI Emerging Markets Index Fund’s top holdings are Samsung Electronics (South Korea: electronics), 2.6%; China Mobile, 1.9%; Gazprom (Russia: gas utility), 1.7%; America Movil (Brazil: wireless), 1.4%; Petrobras Petroleo preferred (Brazil: nergy), 1.4%; Vale SA (Brazil: mining), 1.3%; Petrobras Petroleo, 1.1%; CNOOC Ltd. (China: energy), 1.0%; Banco Itau Holding Financeira SA (Brazil: banking), 1.0%; and Industrial & Commercial Bank of China (China: banking), 1.0%.

The fund’s industry breakdown is as follows: Financials, 22.9%; Energy, 13.9%; Materials, 13.5%; Information Technology, 13.1%; Telecommunication Services, 8.6%; Consumer Discretionary, 8.1%; Consumer Staples, 7.9%; Industrials, 7.0%; Utilities, 3.3%; and Health Care, 1.2%.

iShares MSCI Emerging Markets Index Fund was launched on April 7, 2003. The ETF has an expense ratio of 0.69%.

The fund’s wide diversification among emerging markets tones down its risk, but emerging markets are still far more volatile and vulnerable to downturns than markets in the developed world.

iShares MSCI Emerging Markets Index Fund is a buy for aggressive investors.

ISHARES MSCI SOUTH KOREA INDEX FUND $55.82 (New York Exchange symbol EWY; buy or sell through brokers), is an exchange-traded fund that aims to track the MSCI Korea Index.

The fund’s top holdings are Samsung Electronics, 17.4%; Hyundai Motor Co., 6.1%; Posco (steel), 4.5%; Hyundai Mobis (auto parts), 4.4%; Shinhan Financial, 3.4%; Kia Motors, 3.2%; LG Chemical, 2.8%; KB Financial, 2.8%; Hyundai Heavy Industries, 2.2%; and Hynix Semiconductor, 2.0%.

The fund’s industry breakdown is as follows: Information Technology, 27.4%; Consumer Discretionary, 19.5%; Financials, 14.6%; Industrials, 14.4%; Materials, 12.9%; Consumer Staples, 5.0%; Energy, 3.0%; Telecommunication Services, 1.3%; Utilities, 1.2%; and Health Care, 0.8%.

iShares MSCI South Korea Index Fund was launched on May 9, 2000. The ETF has an expense ratio of 0.61%.

South Korea’s economy is the fourth largest in Asia. Its currency (the won) is rising, but exports remain strong, particularly exports to China. That helps offset the risk of lower sales to the U.S. and Europe. China is now South Korea’s biggest export market. South Korea’s economy is forecast to grow by as much as 4% in 2012.

An ongoing drawback to South Korean investment is the country’s proximity to North Korea, with its nuclear weapons and seemingly unstable and aging leader. However, North Korea is unlikely to launch any serious attack on the south.

iShares MSCI South Korea Index Fund is a buy for aggressive investors.

ISHARES MSCI GERMANY FUND $20.54 (New York Exchange symbol EWG; buy or sell through brokers) is an ETF that aims to track the stocks in the MSCI Germany Index.

This index aims to replicate 85% of the total market capitalization of the German stock market. The remaining 15% is unavailable for investment, partly due to limitations on foreign ownership.

The fund’s top holdings are Siemens AG (engineering conglomerate), 10.5%; BASF (chemicals), 7.9%; SAP (software), 6.6%; Bayer (diversified chemicals), 6.4%; Allianz (insurance), 6.0%; Daimler AG (automobiles), 5.7%; E.ON (energy), 5.5%; Deutsche Telekom, 4.6%; Deutsche Bank AG, 4.6%; and Muenchener Rueckver AG (insurance), 3.3%.

The fund’s industry breakdown is as follows: Consumer Discretionary, 17.0%; Financials, 16.9%; Materials, 15.4%; Industrials, 14.7%; Health Care, 11.2%; Information Technology, 8.0%; Utilities, 7.9%; Telecommunication Services, 4.6%; and Consumer Staples, 3.9%.

The fund was launched on March 12, 1996. It has an expense ratio of 0.53%.

Exports account for 45% of Germany’s economy. The slowdown in the U.S., one of its major markets, has hurt the country’s exports. In addition, concerns are being raised about the cost of bailing out Greece and other struggling European countries, such as Ireland, Spain and Portugal. However, the low euro is a big plus for German exports, and the longer-term outlook for the country’s economy is postitive.

iShares MSCI Germany Fund is a buy.

ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND $62.19 (New York Exchange symbol ECH; buy or sell through brokers), is an ETF that aims to track the MSCI Chile Investable Market Index. This index consists of stocks that are mainly traded on the Santiago Stock Exchange.

The fund’s top holdings are Empresas Copec SA (conglomerate), 9.6%; Cencosud SA (retailer), 8.8%; Empresa Nacional de Electricidad (electric power), 8.3%; Quimica y Minera de Chile (mining), 8.2%; Enersis AS (electric power), 7.8%; Empresas CMPC (pulp and paper), 6.6%; S.A.C.I. Falabella (retail), 5.1%; Banco Santander Chile (banking), 4.9%; LAN Airlines SA (Chilean national airline), 4.4%; and CAP SA (iron mining and steel), 4.2%.

The fund’s industry breakdown is as follows: Utilities, 25.5%; Materials, 19.7%; Industrials, 16.3%; Consumer Staples, 13.8%; Financials, 12.7%; Consumer Discretionary, 6.7%; Telecommunications, 4.0%; and Information Technology, 1.3%.

iShares MSCI Chile Investable Market Index Fund was launched on November 12, 2007. The ETF has an expense ratio of 0.61%.

Chile is the world’s biggest copper supplier. Asian countries are large consumers of Chilean copper. The country’s continuing dependence on resources is something of a drawback to investment in Chile. However, the long-term outlook for the country’s economy remains sound.

iShares MSCI Chile Investable Market Index Fund is a buy for aggressive investors.

ISHARES MSCI BRAZIL INDEX FUND $61.79 (New York Exchange symbol EWZ; buy or sell through brokers), is an exchange-traded fund that is designed to track the Brazilian stock market.

The fund’s top holdings are Petrobras preferred shares (energy), 9.6%; Cia Vale do Rio Doce (mining) preferred, 9.4%; Itau Unibanco Multiplo SA (banking), 7.9%; Petrobras common, 7.4%; and Cia Vale do Rio Doce common, 6.5%.

The fund’s concentration in certain stocks, such as Petrobras and Cia Vale do Rio Doce, adds risk, as does its focus on the resource sector. However, both are high-quality stocks. Brazil’s economy is forecast to grow at a rate of 3.6% in 2012.

The ETF was launched on July 10, 2000. It has an expense ratio of 0.61%.

iShares MSCI Brazil is a buy for safety-conscious investors willing to accept some risk.

Pat McKeough responds to many personal questions on stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

This week, an investor asked about one of the telecommunications giants of the world stock market, Telefonica. That prompted Pat to examine the balancing act a company like Telefonica undergoes when it experiences weakness in some markets and strength in others.

Q: Hello: I am thinking of adding to my position on Telefonica, which I have in my portfolio. Thanks.

A: Telefonica SA (ADR, symbol TEF on New York; www.telefonica.com), provides a range of telecommunications services, including telephone, mobile, Internet, data and entertainment. Telefonica mainly operates in Spain, Portugal and a number of Latin American countries.

The company has 40.7 million traditional telephone (or land line) customers, 227.3 million wireless subscribers, 18.9 million Internet users and 3.1 million pay TV subscribers.

World stock market: Telefonica builds a position in China

Telefonica now gets 43% of its sales from Latin America, followed by Spain (31%) and the rest of Europe (26%).

The company has also expanded its alliance with China Unicom, the second-largest wireless carrier in China. In October 2009, the companies bought $1 billion of each other’s stock. In January 2011, they bought a further $500 million of each other’s stock.

These share purchases increased Telefonica’s ownership stake in China Unicom to 9.7%; China Unicom now holds 1.4% of Telefonica. The partnership will continue to jointly purchase wireless equipment and build infrastructure to serve China’s fast-growing communication market.

You can see Pat’s recommendation on Telefonica in this week’s Inner Circle Q&A. In his analysis, he also looks at whether Telefonica’s growing operations in Latin America can offset weakness in Spain and Europe—and the possible effects of the weaker euro on the company’s operations. And he looks closely at the potential risks of its Chinese venture.

Inner Circle members see Pat’s analysis and recommendations on the stocks other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

There are various ways of structuring your business affairs using offshore investing companies or trusts that can cut or defer your taxes. You may also be able to protect your assets from legal judgments rendered in Canada if you move them to accounts in certain foreign jurisdictions.

Earnings in an “offshore account” are generally lightly taxed, or not taxed at all, by the country where the bank or brokerage account is located. This includes jurisdictions like Switzerland or the Cayman Islands.

However, Canadian residents are obliged to report any income they earn through foreign investing on their Canadian tax returns. (You can only claim tax-exempt “non-resident” status without giving up your citizenship by staying outside of Canada for more than half of a tax year.)

The high cost of obeying the complex rules of offshore investing

Offshore investing banks generally do not provide reports on your investment income to the Canada Revenue Agency. So it’s up to you to comply with these reporting requirements.

However, the reporting rules for foreign investment property are complex, the information required is extensive, and the penalties for non-compliance are steep in offshore investing.

You want to protect your “safe money” — the part of your portfolio you’re counting on for the future — yet you want to earn more than you’re getting from the bank. That’s where my Canadian Wealth Advisor newsletter comes in. I’ll show you several proven ways to protect and grow your safe money. Click here to learn how you can get started right away.

You’ll need to consult a tax advisor or lawyer in order to correctly structure the shelter. Note, however, that some law firms and tax advisors sell tax shelters to their clients as part of their businesses. It’s a major profit centre for them, so they are operating under a conflict of interest. Impartial lawyers or tax advisors may, and often do, disagree about the legality and/or practicality of those shelters.

What’s more, the fees involved in setting up and maintaining offshore investing accounts may offset a lot of your tax savings. That’s true even if the funds are already in a taxable account, and you don’t face a major tax cost of moving them into offshore accounts, as you do with an RRSP withdrawal. It’s also harder to evaluate and obtain adequate information on an offshore investment.

How offshore investing can create bigger losses than tax savings

An offshore account may help you defer or avoid taxes on investment profits, legally or otherwise. However, when you invest money with any offshore investing company, you need to carefully investigate and make sure you have adequate safeguards. Otherwise, you may have losses rather than profits.

Let’s put it this way: we strongly advise against doing anything illegal to cut taxes. Moreover, when you engage in offshore investing with the intention of evading taxes, you may be risking losses that exceed the taxes you would have paid.

Something else to consider: If you discover that you’ve been cheated while offshore investing, you may not be able to complain to authorities without admitting your own involvement in tax evasion.

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The Nasdaq 100 Index contains shares of companies in a number of major industries, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies. The fund’s expenses are about 0.20% of its assets.

The index’s highest-weighted stocks are Apple, Microsoft, Qualcomm, Google, Cisco Systems, Intel, Amazon.com, Oracle Corp., Comcast Corp. and Amgen Inc.

PowerShares QQQ ETF is a buy for aggressive investors only.

The fund’s top holdings are IBM, ExxonMobil, Chevron Corp., 3M, Johnson & Johnson, McDonald’s Corp., Coca-Cola Co., Caterpillar Inc., United Technologies and Procter & Gamble. The fund’s expenses are about 0.18% of its assets.

SPDR Dow Jones ETF is a buy.

The index’s highest-weighted stocks are Exxon-Mobil, Microsoft, Procter & Gamble, Apple, Wells Fargo & Co., Johnson & Johnson, IBM, Chevron, General Electric, Pfizer Inc., Coca-Cola Co. and AT&T.

The fund’s expenses are just 0.10% of its assets.

If you want exposure to the S&P 500 Index, the SPDR S&P 500 ETF is a buy.

In international stock markets ABB has taken advantage of the strong Swiss currency to make an acquisition to strengthen its holdings in the U.S.

ABB LTD. American Depository Receipt “ADR” (New York symbol ABB; www.abb.com)is a leading maker of power technologies for utilities. The Switzerland-based company’s products include transformers, transmission systems and circuit breakers. ABB also makes automation systems and robotics. Clients in a wide range of industries use these systems to make their facilities more productive.

International stock markets:Take advantage of the weaker U.S. Dollar

ABB is taking advantage of the slow U.S. economy and weaker U.S. dollar to make acquisitions. In January 2011, it paid $4.3 billion for Arkansas-based Baldor Electric Co., which makes electric motors and related products, such as conveyor belts, fans and pumps. Adding Baldor helped strengthen ABB’s North American operations. ABB still has plenty of room to grow in this region: right now,the Americas account for less than 25%of ABB’s business.

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In the three months ended June 30, 2011, ABB’s revenue rose 27.8%, to $9.7 billion from $7.6 billion ayear earlier. The gain was mainly due to Baldor’s contribution. If you exclude the positive impact of thelow U.S. dollar on the company’s international operations, its revenue would have risen 17%. Earnings jumped 43.3%, to $893 million, or $0.39 per ADR (each ADR represents one ABB common share). A year earlier, the company earned $623 million, or $0.27 per ADR.

The company’s strong balance sheet gives it plenty of flexibility to make more acquisitions. ABB holds cash of $4.9 billion. Its long-term debt of $2.5 billion is a low 6% of its market cap. However, growth by acquisition can add risk. ABB also needs to successfully manage rising raw material costs.

We cover a number of ADRs in our Wall Street Stock Forecaster newsletter. You can see our advice on specific ADRs in that publication. In the October edition of Wall Street Stock Forecaster, we examine ABB. We conclude our analysis with our clear buy/sell/hold on ABB. ABB is just one of 28 stocks we analyze in this issue of our Wall Street Stock Forecaster.

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As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital-gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders. Below, we update our advice on six ETFs — five buys and one we don’t recommend.

ISHARES S&P/TSX 60 INDEX FUND $16.56 (Toronto symbol XIU; buy or sell through a broker; ca.ishares.com) is a good, low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets.

Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, it holds a few we wouldn’t include.

The index’s top holdings are Royal Bank, 6.7%; TD Bank, 6.4%; Bank of Nova Scotia, 5.5%; Barrick Gold, 4.8%; Suncor Energy, 4.1%; Potash Corp., 3.9%; Goldcorp, 3.8%; Bank of Montreal, 3.7%; Canadian Natural Resources, 3.2%; CN Railway, 3.2%; BCE Inc., 3.0%, TransCanada Corp., 2.9%, CIBC, 2.9%; Enbridge, 2.6%; Cenovus Energy, 2.3% and Manulife Financial, 2.1%.

iShares S&P/TSX 60 Index Fund is a buy.

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $19.60 (Toronto symbol XDV; buy or sell through a broker; ca.ishares.com) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of its assets. The fund’s MER is 0.50%. Its yield is 2.7%.

The fund’s top holdings are CIBC, 6.6%; Bank of Montreal, 5.3%; Bonterra Energy, 5.2%; National Bank, 4.9%; TD Bank, 4.9%; Telus, 4.8%; IGM Financial, 4.3%; Enbridge, 4.2%; BCE, 4.2%; Canadian Utilities, 3.7%; and Manitoba Telecom, 3.7%.

The fund holds 50.2% of its assets in financial stocks. Utilities are next, at 26.4%. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector.

iShares Dow Jones Canada Select Dividend Index Fund is a buy.

SPDR S&P 500 ETF $114.42 (New York symbol SPY; buy or sell through brokers; www.spdrs.com) holds the stocks in the S&P 500 Index, which consists of 500 major U.S. stocks that are chosen based on their market cap, liquidity and industry group.

The index’s highest-weighted stocks are Exxon-Mobil, Microsoft, Procter & Gamble, Apple, Wells Fargo & Co., Johnson & Johnson, IBM, Chevron, General Electric, Pfizer Inc., Coca-Cola Co. and AT&T.

The fund’s expenses are just 0.10% of its assets.

If you want exposure to the S&P 500 Index, the SPDR S&P 500 ETF is a buy.

SPDR DOW JONES INDUSTRIAL AVERAGE ETF $109.28 (New York symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average.

The fund’s top holdings are IBM, ExxonMobil, Chevron Corp., 3M, Johnson & Johnson, McDonald’s Corp., Coca-Cola Co., Caterpillar Inc., United Technologies and Procter & Gamble. The fund’s expenses are about 0.18% of its assets.

SPDR Dow Jones ETF is a buy.

POWERSHARES QQQ ETF $53.53 (Nasdaq symbol QQQQ; buy or sell through brokers; www.invescopowershares.com), formerly called Nasdaq 100 Trust Shares, holds the stocks that represent the Nasdaq 100 Index. That index is made up of the 100 largest shares on the Nasdaq exchange, based on market cap.

The Nasdaq 100 Index contains shares of companies in a number of major industries, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies. The fund’s expenses are about 0.20% of its assets.

The index’s highest-weighted stocks are Apple, Microsoft, Qualcomm, Google, Cisco Systems, Intel, Amazon.com, Oracle Corp., Comcast Corp. and Amgen Inc.

PowerShares QQQ ETF is a buy for aggressive investors only.

ISHARES MSCI CANADA INDEX FUND $25.42 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) is like a market-cap-based index fund, but its managers try to improve its performance by tinkering with the index-fund formula. They do this through their Morgan Stanley Capital International Canada Index. The fund has an MER of 0.50%.

The index’s top holdings are Royal Bank, 5.7%; TD Bank, 5.5%; Bank of Nova Scotia, 4.7%; Barrick Gold, 4.0%; Suncor Energy, 3.9%; Potash Corp., 3.9%; Goldcorp, 3.3%; Canadian Natural Resources, 3.2%; Bank of Montreal, 3.1%; CN Railway, 2.7%; and CIBC, 2.4%.

If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index Fund. You’ll pay about a third of the management fees.

We don’t recommend iShares MSCI Canada.

An American Depositary Receipt, or ADR, is a certificate that represents a foreign stock that trades in the United States. Banks and brokerage firms in the U.S. issue or sponsor ADRs, and investors buy and sell them on U.S. stock markets, just like regular stocks.

If you own an American Depositary Receipt, you have the right to obtain the foreign stock it represents. However, investors usually find it more convenient to continue holding ADRs as part of their strategy for portfolio diversification.

Each American Depositary Receipt may represent one or more shares of the foreign stock. However, if the stock is expensive, the ADR may represent a fraction of a share. That way, the ADR will start trading at a moderate price, or be in range of similar stocks on the exchange where it trades. The price of an ADR usually stays close to the price of the foreign stock in its home market.

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ADRs make foreign investing much easier and safer for individual investors. The foreign company must provide detailed financial information to U.S. regulators, and to the sponsor, or “depositary,” bank or broker. Since ADRs trade on U.S. stock market, you don’t have to worry about exchange rates, foreign stock-exchange rules, or the language barrier. Price information is readily available, and transaction costs are lower. Trades will clear and settle in U.S. dollars. As well, the depositary bank or broker will convert any dividends or other cash payments into U.S. dollars before it sends them on to you.

Depositary banks that issue ADRs sometimes charge fees for their services; also they incur expenses for services such as converting foreign currency into U.S. dollars and deduct these fees and expenses from the dividends and other distributions on the ADRs. Sometimes, however, the foreign company pays the fees in return for the exposure to the U.S. market.

We cover a number of ADRs in our Wall Street Stock Forecaster newsletter. You can see our buy/sell/hold advice on specific ADRs in that publication.

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Pfizer Inc., New York symbol PFE, makes Lipitor, a leading cholesterol drug. However, the U.S. patent for Lipitor expired in June 2011. That will let rival drug makers sell cheaper, generic versions of this drug.

Even so, Pfizer has several new promising drugs in its pipeline, including Eliquis, a new anti-stroke drug that Pfizer developed along with another well-known U.S. pharmaceutical firm, Bristol-Meyers Squibb Co. (New York symbol BMY).

There is another drug moving through this U.S. stock’s pipelineas well. The Food and Drug Administration has also approved Xalkori, Pfizer’s new drug for the treatment of lung cancer.

Currently, Pfizer trades at just 7.9 times its forecast 2011 earnings of $2.24 a share. The company spends 14% of its revenue on research. That comes out of its current earnings, so this U.S. stock’s true price to earnings ratio is actually somewhat lower.

Pfizer pays adividend of $0.80 which currently yields 4.4%.

We updated our advice on Pfizer in our September 2, 2011, Wall Street Stock Forecaster hotline, You can view it immediately view when you take a 1-month free trial to Wall Street Stock Forecaster, our newsletter written especially for Canadian investors who want find profitable U.S. stocks with a substantial margin of safety. Click here to get started right away.

(Note: If you are a current Wall Street Stock Forecaster subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)