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.

Q1. A socially responsible portfolio tends to shun:

A)   basic industries and energy stocks.

B)   basic industries and technology stocks.

C)   financial and energy stocks.

Q2. A socially responsible portfolio tends to be more heavily weighted in:

A)   growth and small-cap stocks.

B)   value and small-cap stocks.

C)   growth and large-cap stocks.

Q3. What are the two main benefits to monitoring the potential style bias resulting from socially responsible investing? The benefits are the:

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

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

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

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. fficeffice" />

Q1. A socially responsible portfolio tends to shun:

A)   basic industries and energy stocks.

B)   basic industries and technology stocks.

C)   financial and energy stocks.

Correct answer is A)

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.

Q2. A socially responsible portfolio tends to be more heavily weighted in:

A)   growth and small-cap stocks.

B)   value and small-cap stocks.

C)   growth and large-cap stocks.

Correct answer is A)

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

Q3. What are the two main benefits to monitoring the potential style bias resulting from socially responsible investing? The benefits are the:

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

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

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

Correct answer is C)         

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.