Morningstar Advisor - August/September 2013 - (Page 70)

Screens These Funds Are Counting on Undervalued Sectors By Adam Zoll A handful of diversified equity funds are positioned to benefit from companies in two sectors that are trading at discounts. The market’s performance so far this year has left most stock sectors priced at or above our equity analysts’ fair value estimates— but not all. Basic materials and energy stocks are cheap, our analysts say, in part because of concerns about softening demand in Europe and China and a potential glut in global oil supplies. Yet positive developments, such as growth in U.S. construction and increases in natural gas prices, could help offset these concerns and improve valuations for these sectors. And if that happens, or if fears about these sectors prove to be overblown, a handful of good funds are positioned to take advantage. In this screen, we look for funds that are overweight in undervalued sectors, and in particular those led by management teams 70 Morningstar Advisor August/September 2013 with proven track records. Whether making sector bets, choosing stocks that appear attractive based on fundamentals, or simply executing a consistent value-oriented approach, a good manager knows how to take advantage of what the market is offering—in this case discounts on companies in the basic materials and energy sectors that appear to be worth more than their current stock prices would indicate. We created this screen with Morningstar Office in June. U.S. Fund Category  All U.S. Equity And ( % Basic Materials  13.59 Or  20.05 % Energy First, we search for funds with energy and basic materials weightings that are at least 10 percentage points above those found in ) Vanguard Total Stock Market Index VITSX, a proxy for the U.S. stock market. And Morningstar Rating  Bronze And Distinct Portfolio Only  Yes And Closed to New Investment  No To ensure reasonable costs and quality management, we included only funds with Morningstar Analyst Ratings of Bronze or better. We applied the Distinct Portfolio screen to avoid duplicate share classes and screened out funds that are closed to new investors. It should come as no great surprise that our list of funds includes value and blend funds— in other words, those investing at least part of their portfolios in stocks that appear to be undervalued. It also should come as no

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2013

Morningstar Advisor - August/September 2013
Contents
Contributors
Letter From the Editor
Under Pressure
Has Your View of Bonds Recently Changed?
The Simple Life Cuts a Path to Prosperity
How Extended Is Your Bond Fund?
A Bond Contrarian Scours the Globe for Value
Investments á la Carte
Investment Briefs
Bond Market Behemoths
Shopping in the Digital Age
Shopping in the Digital Age
Diverse Crowd
Motor City Meltdown
Bond Convergence
Corporates Are Fairly Valued, but Opportunities Will Arise
A Legend Still Pines for the Good Fight
Greener Pastures
Forecasting Market Bubbles and Crashes
Forecasting Market Bubbles and Crashes
Home-Court Advantage
Overcoming Technophobia
These Funds Are Counting on Undervalued Sectors
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
What Price Advice?

Morningstar Advisor - August/September 2013