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The Bank of Canada is holding interest rates steady, especially with the current inflation rate of 1.2% well below the bank’s 2% target. The bank doesn’t want to slow Canada’s economic growth with higher rates or push the dollar any higher. Even so, the long-term outlook is for higher interest rates. The heavy deficit spending and the expansion of the money supply over the past few years increase the potential for higher inflation. We continue to advise against investing in bonds right now. That’s because today’s low interest rates make them unattractive, and rising interest rates would push down their future value....

ISHARES MSCI JAPAN INDEX FUND $9.06 (American 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, 5.2%; Mitsubishi UFJ Financial, 2.8%; Honda Motor, 2.5%; Sumitomo Mitsui Financial, 2.0%; Takeda Pharmaceutical, 1.8%; Canon, 1.8%; Mizuho Financial Group, 1.8%; Fanuc Corp., 1.5%; Softbank Corp., 1.4%; and Japan Tobacco Inc., 1.3%.

The fund’s industry breakdown is as follows: Industrials, 20.6%; Consumer Discretionary, 19.1%; Financials, 18.5%; Information Technology, 11.1%; Consumer Staples, 7.2%; Health Care, 7.2%; Materials, 6.3%; Telecommunication Services, 4.5%; Utilities, 2.7%; and Energy, 1.6%.

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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 high quality stocks. ISHARES MSCI JAPAN INDEX FUND (American Exchange symbol EWJ; us.ishares.com) is an exchange traded fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index....

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 high-quality stocks. Here are six international ETFs we like:...

ISHARES AUSTRALIA INDEX FUND $24.58 (New York symbol EWA; buy or sell through brokers) is an ETF that holds the 71 largest Australian stocks. Its MER is 0.52%. The fund’s top holdings include BHP Billiton, 12.1%; Commonwealth Bank of Australia, 10.1%; Westpac Banking Corp., 8.6%; Australia and New Zealand Banking Group, 7.5%; National Australia Bank, 6.5%; Woolworths, 4.0%; Wesfarmers, 3.8%; Rio Tinto, 2.7%; CSL Ltd., 2.6%; and Westfield Group, 2.5%. Australia benefits from its stable banking and political systems. It is also rich in natural resources, and it’s close to key Asian markets with vast potential, including India and China....

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $20.77 (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 4.6%.

The fund’s top holdings are CIBC, 7.1%; National Bank, 5.8%; TD Bank, 5.6%; Bank of Montreal, 5.3%; Bonterra Energy, 4.8%; Royal Bank, 4.6%; Telus Corp., 4.6%; Bank of Nova Scotia, 4.3%; BCE Inc., 4.1%; and AG Growth International, 4.0%.

The fund holds 54.4% of its assets in financial stocks. Utilities are next, at 21.2%. 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 $17.71 (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, 7.4%; TD Bank, 6.8%; Bank of Nova Scotia, 5.8%; Suncor Energy, 4.5%; Barrick Gold, 3.7%; CN Railway, 3.5%; Bank of Montreal, 3.4%; Potash Corp., 3.3%; Goldcorp, 3.3%; BCE Inc., 3.1%; Canadian Natural Resources, 3.0%; TransCanada Corp., 2.9%; CIBC, 2.8%; Enbridge, 2.8%; Cenovus Energy, 2.4%; and Telus Corp., 1.8%.

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iShares S&P/TSX Capped Financials Index Fund, $22.71, symbol XFN on Toronto (Shares outstanding: 35.6 million; Market cap: $808.5 million; ca.ishares.com), aims to mirror the performance of the S&P/TSX Capped Financials Index, which is made up of the largest-capitalization financial-sector stocks on the Toronto exchange. The fund currently holds 25 stocks. The weight of any one company is capped at 25% of the index’s market capitalization, regardless of how big the stock is in relation to the index. The fund’s MER is 0.55%. It yields 3.5%. The iShares S&P/TSX Capped Financials Index Fund’s top holdings are Royal Bank at 20.5%; TD Bank, 18.7%; Bank of Nova Scotia, 15.6%; Bank of Montreal, 9.5%; CIBC, 7.8%; Manulife Financial, 5.5%; Sun Life Financial, 3.6%; National Bank, 3.1%; Power Corporation, 2.1%; and Intact Financial, 2.0%....

Most stock markets have risen lately. But as always, they remain subject to unexpected downturns. Even so, the long-term outlook is for higher stock prices. One way to profit from rising markets is to add exchange traded funds (ETFs) that track major stock indexes to your portfolio. ETF’s trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You must pay brokerage commissions to buy and sell ETFs, but their low management fees still give them a cost advantage over most mutual funds....

ISHARES S&P/TSX GLOBAL GOLD INDEX FUND $19.69 (Toronto symbol XGD; buy or sell through brokers; ca.ishares.com) aims to mirror the performance of the S&P/TSX Global Gold Index.

This index is made up of 58 gold stocks from Canada and around the world. The fund’s MER is 0.55%. iShares S&P/TSX Global Gold Index Fund began trading on March 23, 2001.

The fund’s top 10 holdings are Barrick Gold at 16.0%; Goldcorp., 13.8%; Newmont Mining, 10.5%; Yamana Gold, 5.3%; AngloGold Ashanti (ADR), 5.1%; Kinross, 4.2%; Eldorado Gold, 3.9%; Randgold Resources, 3.9% Gold Fields (ADR), 3.7%; and Agnico-Eagle Mines, 3.4%.

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