ishares

ISHARES CDN REIT SECTOR INDEX FUND $7.22 (Toronto symbol XRE; buy or sell through a broker) holds the 11 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of this index’s value. RioCan REIT makes up 23.3% of the index’s total value; Canadian REIT, 14.1%; Boardwalk REIT, 11.3%; H&R REIT, 10.9%; Canadian Apartment Properties REIT, 9.6%; Calloway REIT, 7.2%; Primaris Retail REIT, 6.1%; Cominar REIT, 5.2%; Chartwell Seniors Housing REIT, 4.9%; Extendicare REIT, 3.2%; and InnVest REIT, 2.2%. We’re glad to see that the top holding is RioCan, one of our favourite REITs. In fact, the top three holdings are among our recommendations. Note that iShares CDN REIT holds a couple of REITs we don’t recommend....

ISHARES MSCI JAPAN INDEX FUND $8.67 (American Exchange symbol EWJ; buy or sell through a broker) is an exchange-traded mutual fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index. The fund charges a fee of 0.59% of assets. The fund’s top holdings include: Toyota Motor, Mitsubishi UFJ Financial Group, Canon Inc., Nintendo, Sumitomo Mitsui Financial, Honda Motor, Tokyo Electric Power, Nippon Telegraph & Telephone and Takeda Pharmaceutical. Japan’s economy is heavily dependent on exports, especially to the U.S. Falling consumer demand and unfavourable currency movements have cut the country’s exports by as much as 35%, and pushed it into recession. However, recently elected Prime Minister Taro Abe has put stimulus measures in place totalling $842.5 billion. This should help push growth up until global economies recover....

Claymore Investments, Inc., is the wholly owned Canadian subsidiary of Chicago-based Claymore Group Inc. The Canadian branch now offers five exchange-traded funds (ETFs) trading on the Toronto exchange. All of the funds aim to combine what Claymore sees as the advantages of passive investment in an index, along with active management to eliminate stocks from the index that it expects to perform poorly. The funds use varying degrees of mathematically formulated models or quantitative investment methodologies which the managers see as a systematic approach to equity selection, portfolio monitoring and portfolio management....

ISHARES CANADIAN BOND INDEX FUND $28.83 (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 diversified range of investment grade Canadian government and corporate bonds, with a term to maturity of more than one year. The index holds 71.8% government bonds and 26.9% corporate bonds. 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 and Bank of Nova Scotia....

ISHARES CANADIAN SHORT BOND INDEX FUND $28.85 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short Term Bond Index. This index consists of a diversified range of investment grade federal, provincial, municipal and corporate bonds, with terms to maturity of between one and five years. Top issuers include the Government of Canada, Canada Housing Trust, Bank of Nova Scotia, the Province of Ontario and the Province of Quebec. The bonds in the index are 68.6% government bonds and 29.2% corporate bonds....

We generally advise against investing in bond funds because we doubt that bond fund managers can add enough value to offset their fees. However, if you need steady income and want to hold bond funds, here are two funds that have low fees and top-quality holdings, and that stay out of speculative trading. Bond yields on corporate bonds have widened against government bonds, but corporate bonds are riskier. These two funds cut risk by emphasising government bonds. ISHARES CANADIAN SHORT BOND INDEX FUND $28.85 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short Term Bond Index....

ISHARES DIVIDEND INDEX FUND $14.89 (Toronto symbol XDV; buy or sell through a broker) currently holds the 30 highest yielding Canadian stocks. Stocks are included in the index based on their dividend growth, yield and average payout ratio. The weight of any one stock in the fund is limited to 10% of the fund’s assets. Its MER is 0.50%. The fund now yields 5.2%. The fund’s top holdings are: CIBC at 7.6%; Bank of Montreal, 6.4%; National Bank, 6.1%; Manitoba Telecom at 5.6%; TD Bank, 5.5%; IGM Financial, 4.8%; Bank of Nova Scotia, 4.4%; Royal Bank, 4.3%; Russel Metals, 4.3%; Telus Corp., 4.1%, TMX Group, 3.5%; and Sun Life Financial, 3.4%....

ISHARES MCSI CANADA INDEX FUND $15.98 (American Exchange symbol EWC; buy or sell through brokers) is like a market-cap based index fund, but it tinkers with the index fund formula to try and improve performance by using its proprietary Morgan Stanley Capital International Canada Index. The U.S.-based fund also has to work around foreign ownership restrictions. iShares MCSI Canada Index Fund is managed by Barclays Global Investors and has an MER of 0.54%. We think that if you want to own a Canadian index fund, you should buy the iShares CDN LargeCap 60. You’ll pay about a third of the management fees. We don’t recommend iShares MCSI Canada Index Fund.

ISHARES CDN LARGECAP 60 INDEX FUND $12.71 (Toronto symbol XIU; buy or sell through a broker) (units split 4-for-1 in August, 2008) is a good low-fee way to buy the top stocks on the TSX. The units hold a basket of stocks that represent the S&P/TSX 60 Index. The index is made up of the 60 largest and most heavily traded stocks on the TSX. Expenses on the units are just 0.17% of assets. Most of the 60 stocks in the index are good quality companies. However, to meet the requirement that all sectors are represented, the index holds a few firms we wouldn’t include, such as Biovail Corp. The index’s top holdings are: Royal Bank, 7.5%; EnCana Corporation, 5.8%; TD Bank, 4.8%; Bank of Nova Scotia, 4.7%; Manulife Financial, 4.6%; Barrick Gold, 4.3%; Canadian Natural Resources, 3.6%; Research in Motion, 3.5%; Suncor Energy, 3.5%; Goldcorp, 3.3%; Potash Corporation, 3.2%; Canadian National Railway, 2.8%; BCE Inc., 2.6%; Rogers Communications, 2.5%; and Bank of Montreal, 2.5%....

We still think high-quality mutual funds with a long-term focus will beat indexes over long periods. If funds invest as we advise — sticking with well-established companies and spreading their assets out across the five main economic sectors — they will tend to lose a lot less than the market indexes in periods when the indexes fall sharply. That’s because big market slides are particularly hard on the hottest, most popular stocks of the preceding market rise, and investing as we do leads you to avoid excessive investment in the hot stocks. Index funds, in contrast, do tend to load up on the hottest, most popular stocks as they rise. That’s because, as they rise, these stocks make up a rising proportion of the index. The most recent example is Potash Corporation of Saskatchewan, which had the highest market cap on the Toronto exchange in June, 2008, on the strength of soaring fertilizer and agriculture prices. The shares have since dropped 70%....