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Japan’s Nikkei 225 stock market index is now trading at 17,454, a level not seen since 2000. That’s despite the recent setback on global stock markets. The index bottomed out at around 8,000 in May, 2003, rose to 11,000 by the end of 2003, and then moved sideways until it started rising in mid-2005. The Bank of Japan recently raised interest rates for only the second time in six years, to 0.5% from 0.25%. Rates are now at the highest level in more than 10 years. Japanese interest rates fell during the 1990s, and hit zero in early 1999. That was in response to a stagnant economy and deflation....

ISHARES CANADIAN BOND BROAD INDEX FUND $28.97 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) (formerly the iUnits Government of Canada 10 Year Bond Fund) mirrors the performance of the Scotia Capital 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. At last report, the bonds in the index were 45.3% Government of Canada bonds, 26.1% Provincial Government bonds, 1.2% Municipal bonds and 24.7% Corporate bonds....

We generally advise against investing in bond funds because we don’t believe 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 don’t engage in speculative trading. ISHARES CANADIAN SHORT BOND INDEX FUND $28.12 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the Scotia Capital Short Bond Index....

ISHARES CANADIAN SHORT BOND INDEX FUND $28.12 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the Scotia Capital Short 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 Canada Mortgage and Housing, TD Capital Trust, Province of Quebec, GreatWest Lifeco, Bell Canada and Bank of Nova Scotia....

ISHARES CDN REIT SECTOR INDEX FUND $14.78 (Toronto symbol XRE; buy or sell through a broker) holds the 12 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT, in terms of market capitalization (unit price times units outstanding), is limited to 25%. RioCan REIT makes up 24.1% of the index’s value; H&R REIT, 13.6%; Summit REIT, 10.8%; Calloway REIT, 9.1%; Boardwalk REIT, 8.4%; Canadian REIT, 7.8%; Canadian Apartment Properties REIT, 5.3%; Chartwell Seniors Housing REIT, 4.8%; Primaris Retail REIT, 4.8%; Legacy Hotels, 4.1%; Innvest REIT, 3.8%; and Retirement Residences REIT, 3.5%. We’ve glad to see that the top holding is RioCan, one of our favorite REITs. In fact, four of the top six holdings are among our recommendations. Note that iShares REIT holds a couple of REITs we don’t recommend....

We generally advise against investing in bond funds because we don’t believe bond fund managers can add enough value to offset their fees. When bonds yielded 10%, it made some sense to buy bond funds and pay a yearly management fee of, say, 2%. Now that bond yields are down closer to 4%, it makes a lot less sense. The bond market is highly efficient and that makes it difficult for bond fund managers to beat the index. In addition, bond funds expose you to the risk that the manager will gamble in the bond market and lose money. However, if you need steady income and want to hold bond funds, here are two funds that have low fees and don’t engage in speculative trading. Holders of both iShares bond funds profit from wholesale bond pricing and narrow spreads. Investors buying bonds on their own in small quantities don’t pay commissions to their brokers. But they pay a hefty markup, because of a wide spread between what brokers pay for the bonds and what they charge investors. iShares bond funds also save investors the trouble of buying and selling bonds every year to maintain steady maturities....

ISHARES MSCI JAPAN INDEX FUND $15.05 (American Exchange symbol EWJ; buy or sell through a broker) is an exchange-traded mutual fund that tries to match the return of the MSCI Japan Index (Morgan Stanley Capital International Japan Index). The MSCI Japan Index is a benchmark for Japanese equity performance. The iShares Japan Index Fund charges a fee of 0.84% of assets. The fund’s top holdings are: Toyota Motor at 5.7%; Mitsubishi Tokyo Financial Group, 3.7%; Mizuho Financial Group, 2.9%; Sumitomo Mitsui Financial, 1.8%; Takeda Pharmaceutical, 1.8%; Honda Motor, 1.8%; Canon Inc., 1.7%; Sony, 1.6%; Matsushita Electric Industrial, 1.4%; and Nomura Holdings, 1.4%. Japanese investing was something of a craze for North Americans in the 1980s. Around the start of the 1990s, the Japanese stock market reached a peak and started to drop. It had fallen by more than 80% by May, 2003. The market has moved up since then, including a 56% rise over the last year. The market recently hit a five-year high....

ISHARES MCSI CANADA INDEX FUND $25 (American Exchange symbol EWC; buy or sell through brokers) invests in most of the stocks in the Morgan Stanley Capital International Canada Index. These stocks represent Canada’s largest and most-established public companies, accounting for about 60% of the market capitalization of all publicly traded stocks. These shares are managed by Barclays Global Investors. There are now 26 different MCSI index funds.

This fund has an MER of 0.59%. That’s a lot higher than the 0.17% MER on the S&P/TSE 60 units, also managed by Barclays. It’s also no better than most open-end index funds, which have MERs as low as 0.54%.

We think MCSI Canada’s high MER defeats the main advantage of index funds. The spread between iShares MCSI Canada’s high MER and that of a low-fee fund may not appear to make a lot of difference in a single year, but there is no point in paying more than you need to.

We don’t recommend iShares MCSI Canada Index Fund.

ISHARES CDN LARGECAP 60 INDEX FUND $68.83 (Toronto symbol XIU; buy or sell through a broker) (formerly called iUnits S&P/TSX 60 Index Participation Fund) is a good low-fee way to buy the top stocks on the TSE. 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 TSE. 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 Abitibi-Consolidated, Quebecor World and Rogers Communcations. The index’s top holdings are: Royal Bank, 6.4%; Manulife, 6.1%; EnCana Corporation, 5.2%; Bank of Nova Scotia, 4.8%; TD Bank, 4.8%; Suncor Energy, 4.8%; Canadian Natural Resources, 3.9%; Bank of Montreal, 3.4%; Barrick Gold, 3.2%; Petro-Canada, 3%; CIBC, 3%; Sun Life Financial, 2.9%; and Canadian National Railway, 2.9%....

The best exchange-traded funds (ETFs) offer well-diversified, tax-efficient portfolios with very low management fees. Due to buyback and share issue arrangements, ETFs always trade close to their net asset value. Here are some of the best deals available in ETFs. We’ve also analysed one we don’t like. ISHARES CDN LARGECAP 60 INDEX FUND $68.83 (Toronto symbol XIU; buy or sell through a broker) (formerly called iUnits S&P/TSX 60 Index Participation Fund) is a good low-fee way to buy the top stocks on the TSE. 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 TSE....