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Investing outside of Canada and the U.S. can expose you to more volatility and risk. The sharp downturn in many foreign markets during the global recession proves this. But there are still countries and regions that offer lots of growth potential and opportunities for diversification. One of the best ways to invest in foreign markets is through exchange-traded funds (ETFs). That’s because directly investing in those markets can be complicated and risky, and high-quality ETFs let you make international investments with greater safety. As well, the best ETFs offer a great combination of low fees and top-quality stocks. Here are four foreign ETFs we like:...

iShares CDN SmallCap Index Fund, $14.94, symbol XCS on Toronto (Shares outstanding: 7.3 million; Market cap: $109.1 million), holds the stocks in the S&P/TSX SmallCap Index. This index is made up of the smaller companies on the Toronto Stock Exchange. These stocks are chosen by market size (their market caps must be between $100 million to $1.5 billion) and liquidity. The fund’s expenses are 0.55% of its assets. The 10 highest-weighted stocks of the 182 companies in the index are Toromont Industries, 1.6%; New Gold, 1.4%; Bankers Petroleum, 1.4%; HudBay Minerals, 1.4%; SXC Health Care Solutions, 1.3%; Daylight Resources Trust, 1.3%; NAL Oil & Gas Trust, 1.2%; Keyera Facilities Income Fund, 1.2%; Consolidated Thompson Iron Mines, 1.2%; and Canadian Western Bank, 1.2%. The fund’s industry breakdown is as follows: Materials, 32.0%; Energy, 24.3%, Financials, 13.5%; Industrials, 11.7%; Consumer Discretionary, 6.8%; Consumer Staples, 3.7%; Health Care, 3.4%, Information Technology, 2.0% and Utilities, 1.7%....

Investor concerns continue to mount over high debt levels in many European countries. That’s especially true of the so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Right now, the European Union and International Monetary Fund are working on a bailout of Greece. However, negotiations are moving slowly, mainly because Germany, which would shoulder most of the bailout, is insisting that the Greek government sharply cut its spending before any restructuring can go forward.

Most European economies still need considerable reform

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In light of recent headlines, it’s not surprising that some investors consider investing in South Korea to be a risky proposition. That’s because the country borders on North Korea, with its nuclear weapons and seemingly unstable leader. Certainly, North Korea’s unpredictability is a continuing drawback to investing in South Korea. However, the North Korean leader’s bluster has so far stopped short of any serious risk to the south. As well, South Korea’s economy, which is Asia’s fourth largest, grew 5.9% in the fourth quarter of 2009. That’s the highest rate since 2007. Moreover, the World Bank’s 2010 ease of doing business survey recently ranked South Korea 19th, just behind Sweden and ahead of Germany and France. (Brazil, by comparison, ranked 129th and India 133rd.)...

Exchange-traded funds (ETFs) have gained popularity in recent years, mainly because many ETFs offer very low management fees. In addition to low fees, the best ETFs offer well-diversified, highly tax-efficient portfolios. However, quality varies. The investment industry has created all sorts of ETFs. 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 five foreign ETFs we like:...

Exchange-traded funds (ETFs) are one of the more benign financial innovations to come along in the past few years. ETFs are set up to mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best ETFs offer well diversified, tax-efficient portfolios with exceptionally low management fees....

Exchange-traded funds (ETFs) may have a place in your portfolio. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Instead, they give you a low-cost, flexible, convenient alternative to mutual funds. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs, but you will quickly make these back because of the low management fees. 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....

Central Fund of Canada, $14.21, symbol CEF.A on Toronto (Shares outstanding: 213.0 million; Market cap: $3.0 billion) is a closed-end mutual fund that holds gold and silver bullion. It now holds 56.7% of its assets in gold bullion, 40.5% in silver bullion and 2.8% in cash. The fund has an MER of 0.38%. The units yield 0.07%. Central Fund trades at an 8% premium to the per-unit value of the assets it holds. We advise against buying closed-end funds at a premium, so we don’t recommend buying units of Central Fund. A: iShares CDN Gold Sector Index Fund, $20.31, symbol XGD on Toronto (Shares outstanding: 55.4 million; Market cap: $1.1 billion), aims to reflect the performance of the S&P/TSX Global Gold Index, which is made up of Canadian and non-Canadian gold stocks that S&P selects using its industrial classifications and guidelines. The fund holds 34 stocks, and its MER is capped at 0.55%....

We think the long-term outlook for China — and Chinese stocks — is strong. That’s because the country’s huge population is generally younger than North Americans, and large numbers of Chinese have the potential to advance from poverty into the middle class. (One of the best ways for investors to tap into Chinese growth is through low-fee exchange-traded funds. The iShares FTSE/Xinhua China 25 Index Fund is one example of an exchange traded fund that focuses on China. You can get our very latest buy/sell/hold advice on this fund in the latest issue of Canadian Wealth Advisor. See below for further details. )

Political instability still a danger to foreign investors in China

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ISHARES CDN BOND INDEX FUND $29.67 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the DEX Universe Bond Index. This index consists of a wide range of investment-grade Canadian government and corporate bonds with terms to maturity of more than one year. The 301 bonds in the portfolio have an average term to maturity of 8.62 years. The fund’s MER is 0.30%. The bonds in the index are 85.1% government and 14.9% corporate. The fund sticks with high-quality government bonds from issuers such as Canada Housing Trust, Government of Canada and Province of Ontario, plus high-quality corporate bonds from issuers such as Bank of Montreal, TransCanada Pipelines, Bank of Nova Scotia and Bell Canada....