Screens Funds That Look Cheaper Than the Market By Karin Anderson This screen turns up solid funds with lower valuations than the S&P 500 Index. Even with the stock market’s retreat so far this year, the market still looks a bit rich according to some measures such as the cyclically adjusted price/earnings ratio, a favorite measure of economist Robert Schiller. Other investors argue that the market actually looks undervalued based on different measures, but most managers agree / that the bargains of a year ago are gone and that it’s been hard to gauge the quality of corporate earnings in the wake of the crisis. In such an environment, it makes sense to veer toward portfolios with a built-in margin of safety, or lower valuations than the market. Morningstar Principia and Morningstar Office are great tools for casting a net for domestic funds whose holdings appear undervalued relative to the broader market. In this case, our screen is focused on mid-cap stock funds in addition to large-cap portfolios because a lot of go-anywhere funds that view the S&P 500 Index as their primary benchmark end up in the mid-cap categories by default. The following criteria are also important components of the screen. First, the screen limits the results to reasonably priced funds (those that levy 1% annually or less) that are open to new investments of $25,000 or less. The field is also narrowed to funds covered by Morningstar analysts. Criteria: Special Criteria And ( Morningstar category 5 Distinct Portfolios Only 5 Large Value 66 Morningstar Advisor April/May 2010