Issues of Scale - Example 7 - Reading 25

Hello Dears,

i have a problem understanding the calculation here.

the solution to question 2 is clear until they reach the point and write:
"it appears that Issac’s strategy will not be constrained until the portfolio reaches about 1 billion in size (1.5 Million / 0.15%).’’

where do they get the the 0,15% from?

furthermore: ‘‘if the level of AUM excceds 1 billion, his position size constraints will require the portfolio to hold a larger number of smaller-cap positions.’’
I don’t really get the conclusion.

can somebody help? thanks

First bullet point under #2:

  • No investment in any security whose index weight is less than 0.015% (approximately 15% of the securities in the index)

I thought so at the beginning … but it says 0.015% not 0.15% like in the solution … am i missing something?

You’re right: my mistake.

I suggest that you contact CFA Institute ( and ask them. It looks like an error to me.

Please let us know what they reply.

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● Maximum position size equal to the lesser of 10× the index weight or the index weight plus 150 bps

Given the minimum index weight of 0.015%, so the maximum position size is LOWER of:

min(10 \times 0.015\%, 0.015\% + 150 bps)
= min(0.15\%, 1.515\%)
= 0.15\%

When the portfolio size exceeds $1 billion, then you will have to invest more than $1,500,000 in smaller cap securities, which exceeds the maximum position size of 0.15% of portfolio size


Good one fino!


great explanation. many thanks. I believe this is the kind of questions i should expect on exam day.

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