Breadth
In the fundamental law of active management, the number of independent active decisions made per year. Many correlated bets count as fewer independent ones.
Where you will meet it
Breadth appears in 6 learning outcomes on the CFA syllabus. A few of them:
- Set out and explain the fundamental law of active management for portfolios and each of its terms: breadth, the information coefficient, the transfer coefficient, and active risk (aggressiveness)
“Breadth is the number of independent active decisions made per year.”
- Analyse top-down active strategies, setting out their logic and how they are carried out
“The trap is low breadth: a handful of large, correlated macro bets means a single wrong call can dominate results, and consistent timing is hard.”
- Explain how firms serving private clients are organised to make money and how they tailor their offer to different client segments
“A bank model can cross-sell credit and in-house products, which brings breadth but also conflicts; an independent model trades scale for objectivity.”
- Contrast active strategies such as security selection and market timing, and use active management's fundamental law to assess shifts in strategy
“A market timer makes a few calls a year on broad asset classes, so breadth is small and a high information coefficient is needed.”
See also
Fundamental law of active management
Learn it properly
Practise it
Practise breadth until it is automatic: questions that explain every wrong option.
Take the free diagnostic →