Explanation

The expected active return is calculated using the formula:

Expected Active Return = Transfer Coefficient × Information Coefficient × √Breadth × Active Risk

Let's analyze the changes:

Old Strategy:

• Breadth = 1,000
• IC = 0.5
• TC = 0.3
• Active Risk = 2.0%

New Strategy:

• Breadth = 1,500
• IC = 0.4
• TC = 0.2
• Active Risk = 2.5%

Impact Analysis:

• Breadth: Increases from 1,000 to 1,500 (√Breadth increases from ~31.6 to ~38.7) - Positive impact
• Information Coefficient: Decreases from 0.5 to 0.4 - Negative impact
• Transfer Coefficient: Decreases from 0.3 to 0.2 - Negative impact
• Active Risk: Increases from 2.0% to 2.5% - Positive impact

The negative impacts (decreases in both IC and TC) significantly outweigh the positive impacts (increases in breadth and active risk). Both IC and TC are multiplicative factors, and their combined decrease (0.5×0.3=0.15 to 0.4×0.2=0.08) represents a substantial reduction in the overall multiplier.

Therefore, the aggregate changes will reduce the expected active return of the fund.