Often, we choose to go with stratified portfolio construction rather than full replication because we may have a small asset size. My question is what is considered a small asset size? Do we have a threshold?
It depends on the benchmark.
On the 2018 exam there was a question in which full replication was the correct answer. In that case, the benchmark was the FTSE 100 (so only 100 stocks, all large-cap, all quite liquid), and the portfolio value was €150 million. Clearly, full replication would be possible with extremely liquid securities and an average of €15 million for each.
CFA Institute never asks questions that explore thresholds (unless those thresholds are described explicitly in the curriculum). The point of the type of question about which you’re asking is to determine whether you can recognize that the portfolio clearly can replicate the benchmark, or that it clearly cannot replicate the benchmark.
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got it
thank you
My pleasure.