The best new ETFs in 2007

Morningstar's Jeffrey Ptak recently announced his picks for the best new ETFs in 2007. Ptak, the research firm's director of exchange-traded securities analysis, broke the winners into two groups; market-beating ETFs and longer-term portfolio building blocks. Here's how it all shook out.

GROUP NO.1: MARKET-BEATING ETFS

Vanguard Mega Cap 300 Value Index - "It stands apart ... in an important respect: Its holdings are cheaper, as the portfolio was recently trading at a hefty 15 percent discount to what it's worth, in our view."

Claymore/Great Companies Large- Cap Growth - "The fund is chock-full of cheap, high-quality financial- and consumer- related names. It was recently trading at a 12 percent discount to our fair value estimate."

WisdomTree Low P/E -- "The index has homed in on values in many of the same places we're finding them, notably the financial services and consumer-related sectors, which have gotten crushed in recent months amid fears over a widespread credit crunch."

First Trust Large Cap Value Opportunities AlphaDEX - "The fact is the portfolio is chock-full of bargains. Of the 170 portfolio holdings that our analysts cover, nearly 100 were recently trading at a 10 percent or greater discount to fair value."

GROUP NO.2: PORTFOLIO BUILDING BLOCKS

Vanguard FTSE All-World ex-U.S. (VEU) - "This fund is uniquely suited to those investors seeking a one-stop option to complement a U.S.-centric portfolio. But what really sets this ETF apart is its cost: 0.25 percent of assets, which makes it one of the cheapest diversified foreign funds around."

SPDR S&P International Small Cap - "It can be difficult to find a worthwhile foreign small-cap fund that's still open to new investment. [This] offering makes that task a bit easier, as [it] trawls developed countries for smallcap stocks."

IShares S&P World ex-U.S. Property - "Although there are a few differences at the margins among the current crop of foreign real estate ETFs, they're pretty similar on the whole. That argues for going with the cheapest of the bunch, a distinction that currently belongs to the iShares fund."

Vanguard Total Bond Market ETF - "First, the Vanguard fund's 0.11 percent expense ratio is roughly half the iShares offering's, making it the undisputed cost king. That's a key advantage given that expenses loom large in the absolute-returnconstrained bond world. Second, the

Vanguard fund's portfolio consists of 3,000- plus bonds, far more than the 160 or so securities that the iShares ETF holds. That difference is noteworthy when you consider that the Lehman Aggregate index spans more than 9,200 bonds, meaning that the iShares offering owns a very small percentage of the index."

iShares S&P National Municipal - "We think this fund's launch marks a welcome development. In addition to the many actively managed options that already exist, investors will no doubt benefit from having cheap, passively managed offerings like this one to choose from."