ishares

We think conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus.

The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of highquality stocks.

Here are six international ETFs we like:

ISHARES MSCI JAPAN INDEX FUND $10.17 (New York Exchange symbol EWJ; buy or sell through brokers; us.ishares.com) is an exchange traded fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index.

The ETF’s top holdings include Toyota, 6.1%; Mitsubishi UFJ Financial, 3.1%; Honda Motor, 2.7%; Sumitomo Mitsui Financial, 2.4%; Mizuho Financial Group, 2.2%; Canon, 1.8%; Takeda Pharmaceutical, 1.8%; Softbank Corp., 1.5%; Fanuc Corp., 1.3%; and Japan Tobacco Inc., 1.2%.

The fund’s industry breakdown is as follows: Consumer Discretionary, 20.7%; Financials, 20.1%; Industrials, 20.0%; Information Technology, 10.8%; Health Care, 6.9%; Materials, 6.6%; Consumer Staples, 6.3%; Telecommunication Services, 4.4%; Utilities, 2.6%; and Energy, 1.6%.

iShares MSCI Japan Index Fund was launched on March 12, 1996....

ISHARES AUSTRALIA INDEX FUND $26.91 (New York symbol EWA; buy or sell through brokers) is an ETF that holds the 71 largest Australian stocks. Its MER is 0.51%.

The fund’s top holdings include BHP Billiton, 11.6%; Commonwealth Bank of Australia, 10.2%; Westpac Banking Corp., 9.0%; Australia and New Zealand Banking Group, 7.5%; National Australia Bank, 6.6%; Woolworths, 4.1%; Wesfarmers, 3.9%; CSL Ltd., 2.9%; Rio Tinto, 2.8%; and Woodside Petroleum, 2.4%.

Australia benefits from its stable banking and political systems....

ISHARES MSCI BRAZIL INDEX FUND $55.03 (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 Cia Itau Unibanco Holding (banking), 8.1%; Vale do Rio Doce (mining) preferred, 7.2%; Petrobras common, 7.2%; Banco Brandesco (banking) preferred, 6.7%; Cia de Bebidas das Americas (beer and beverages), 6.7%; and Vale SA, 3.8%.

The fund’s focus on the resource sector and its concentration in certain stocks, such as Petrobras and Vale do Rio Doce, add risk. However, both are high-quality stocks.

Brazil’s economy is forecast to grow at a rate of 3.1% this year. Domestic consumption is recovering, although exports remain slow. Growth could be as high as 3.7% next year.

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ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $22.24 (Toronto symbol XDV; buy or sell through brokers; 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%. It yields 4.2%.

The fund’s top holdings are CIBC, 6.7%; Bonterra Energy, 6.0%; National Bank, 6.0%; TD Bank, 5.5%; Bank of Montreal, 5.4%; Royal Bank, 4.4%; Telus Corp., 4.4%; Bank of Nova Scotia, 4.1%; BCE Inc., 4.1%; and IGM Financial, 3.9%.

The fund holds 51.5% of its assets in financial stocks. 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.

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ISHARES S&P/TSX 60 INDEX FUND $18.50 (Toronto symbol XIU; buy or sell through brokers; 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.

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

The index’s top holdings are Royal Bank, 7.8%; TD Bank, 6.7%; Bank of Nova Scotia, 6.0%; Suncor Energy, 4.6%; Bank of Montreal, 3.6%; CN Railway, 3.6%; Potash Corp., 3.3%; Enbridge, 3.1%; Trans- Canada Corp., 3.0%; BCE Inc., 3.0%; CIBC, 2.9%; Canadian Natural Resources, 2.9%; Barrick Gold, 2.9%; Goldcorp, 2.6%; Manulife Financial, 2.3%; Cenovus Energy, 2.2%; and Telus Corp., 1.9%.

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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice on a wide range of topics, including strategies for international stock markets. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “Foreign investments can strengthen your portfolio and here are 3 ways you can do it with less risk.”...

iShares Dow Jones U.S. Home Construction Index Fund ETF, $21.88, symbol ITB on New York (Units outstanding: 95.0 million; Market cap: $2.1 billion; us.ishares.com), aims to track the 29 stocks in the Dow Jones U.S. Select Home Construction Index. The ETF’s MER is 0.46%. U.S. house prices rose 8.3% in December 2012 from December 2011. That’s the strongest rise since May 2006. Prices also gained 0.4% from November 2012. Prices increased in 46 of 50 states during the year. Arizona saw the strongest rise, at 20.2%, though prices in the state were still down 39.8% from their peak. Across the U.S., prices were 26.9% below their April 2006 peak....

iShares S&P/TSX Canadian Dividend Aristocrats Index Fund ETF, $23.47, symbol CDZ on Toronto (Shares outstanding: 36.9 million; Market cap: $866.0 million; ca.ishares.com), seeks to replicate the performance of the S&P/TSX Canadian Dividend Aristocrats Index. The ETF’s MER is 0.60%, and it yields 3.2%. The S&P/TSX Canadian Dividend Aristocrats Index only includes stocks or trusts that have increased their dividends every year for five years—although it has now changed that to include stocks or trusts that have maintained the same dividend for a maximum of two consecutive years within that five-year period. That means the index excludes a number of sound companies that pay dividends but haven’t increased them every year, including three of Canada’s big-five banks. The ETFs top 10 holdings are AGF Management, 6.4%; Atlantic Power, 4.6%; AG Growth International, 3.8%; Reitmans (Canada), 3.2%; Transcontinental Inc., 3.1%; Exchange Income Corp., 2.8%; IGM Financial, 2.6%; Enbridge Income Fund Holdings, 2.6%; Bird Construction, 2.3%; and Keyera Corp., 2.3%....

iShares S&P/TSX Capped Energy Index Fund, $15.61, symbol XEG on Toronto (Shares outstanding: 56.0 million; Market cap: $874.2 million; ca.ishares.com), aims to mirror the performance of the S&P/TSX Capped Energy Index, which is made up of the largest-capitalization energy stocks on the Toronto exchange. The weight of any one company is capped at 25% of the index’s market capitalization. The fund’s MER is 0.60%. It yields 1.5%. iShares S&P/TSX Capped Energy Index Fund’s top 10 holdings are Suncor Energy, 17.6%; Canadian Natural Resources, 12.0%; Cenovus Energy, 8.9%; Nexen, 5.3%; Crescent Point Energy, 5.2%; Encana Corp., 4.9%; Talisman Energy, 4.7%; Imperial Oil, 3.9%; Canadian Oil Sands Trust, 3.4%; and Husky Energy Trust, 3.3%. We continue to think most investors are better off investing in individual companies as part of a well-balanced and diversified portfolio rather than in funds that focus on narrow market sectors. As well, indexes that cap their holdings at a certain level can cut your return by reducing the contribution from top performers if they rise to make up more than the capped limit....

BMO Equal Weight U.S. Health Care Hedged to CAD Index ETF, $22.62, symbol ZUH on Toronto (Units outstanding: 615,000; Market cap: $13.9 million; www.etfs.bmo.com), holds 48 U.S. health care stocks. Its top holdings are Boston Scientific at 2.7%; Life Technologies, 2.6%; Calgene Corp., 2.5%; Cigna, 2.5%; Aetna, 2.5%; Thermo Fisher Scientific, 2.5%; Allergan, 2.4%; Gilead Sciences, 2.4%; DaVita HealthCare, 2.4%; and Mylan Inc., 2.4%. BMO Equal Weight U.S. Health Care Hedged to CAD Index ETF is hedged against movements of the U.S. dollar against the Canadian dollar. Its value rises and falls solely with the stocks in its portfolio. So it would not give you U.S. dollar exposure....