Helping Active Managers Catch Their Breadth

Breadth — the number of independent bets a manager can take — is the raw material of active return, and it is what a concentrated benchmark constrains. Between April 30, 2025, and July 31, 2026, the weight of the 10 largest constituents climbed from 26.7% to 38.1% in the MSCI Emerging Markets Index, 32.3% to 36.7% in the MSCI USA Index and 20.5% to 24.2% in the MSCI ACWI® Index; even the least concentrated, the MSCI ACWI® ex USA Index, rose almost five percentage points, to 15.9%. Across the full distribution, the 20 largest U.S. names accounted for 46.9% of the MSCI USA Index, up from 42.6%.

One way to directly address concentration is by splitting the index, which allows portfolios built from it to do the same. Each of the biggest names is trimmed to a set ceiling and the excess weight is “parked” in a completion portfolio the asset owner holds passively. That splits the index roughly 80/20 — about 80% in the capped index the manager is measured against and 20% reflecting the asset manager’s completion sleeve — and the two always add back to the original index. The split restores breadth, and the effect over the period was broad-based. Measured against the capped index, managers gained active share and improved results across stock-specific and factor-based value, quality and momentum strategies alike.

For the asset owner, the concentrated names it wants to hold remain in the portfolio, now held passively in the completion sleeve, so target-market exposure is retained in full. What changes is the index the manager is measured against. MSCI research finds that at low-to-moderate active risk the asset owner forgoes no overall return potential, with a modest cost of splitting emerging only at higher tracking error — so the case is strongest where active risk is kept in check.