Thanks for the responses and clarifications! I think I'm getting it now.

Interestingly enough, the weighted average of PE ratios by value of holding seems to be the method used by Morningstar in computing the PE ratio for mutual funds. But it may not be the best look at the picture.

http://www.morningstar.com/InvGlossary/price_earnings_ratio....

The (P/E) ratio of a fund is the weighted average of the price/earnings ratios of the stocks in a fund's portfolio. The P/E ratio of a company, which is a comparison of the cost of the company's stock and its trailing 12-month earnings per share, is calculated by dividing these two figures.

At Morningstar, in computing the average, each portfolio holding is weighted by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the fund's final P/E.