Reading 31: Equity Portfolio Management－LOS l investing, potential, criteria, discuss, screens

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CFA Institute Area 8-11, 13: Asset Valuation
Session 10: Equity Portfolio Management
Reading 31: Equity Portfolio Management
LOS l: Explain the use of stock screens based on socially responsible investing (SRI) criteria and discuss their potential impact on a portfolio's style characteristics.

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A socially responsible portfolio tends to be more heavily weighted in:

A) growth and large-cap stocks.

B) value and small-cap stocks.

C) value and large-cap stocks.

D) growth and small-cap stocks.

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Answer and Explanation

A socially responsible portfolio tends to be more heavily weighted in growth stocks and small-cap stocks.

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A socially responsible portfolio tends to shun:

A) basic industries and technology stocks.

B) financial and energy stocks.

C) financial and technology stocks.

D) basic industries and energy stocks.

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Answer and Explanation

Socially responsible portfolios usually shun basic industries and energy stocks, which tend to be value stocks. This accounts for the bias towards growth stocks in socially responsible portfolios.

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What are the two main benefits to monitoring the potential style bias resulting from socially responsible investing? The benefits are the:

A) portfolio manager can take steps to minimize the bias and the manager can determine the appropriate benchmark.

B) investor can change his or her social screen and the manager can determine the appropriate benchmark.

C) portfolio manager can take steps to minimize the bias and the manager can suggest alternative socially responsible portfolios to the investor.

D) investor can change his or her social screen and the manager can suggest alternative socially responsible portfolios to the investor.

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Answer and Explanation

Socially responsible portfolios tend to be biased towards growth and small-cap stocks. The benefits to monitoring this style bias are that the portfolio manager can take steps to minimize it and can determine the appropriate benchmark for the socially responsible portfolio.