Explanation

Breadth in the context of the Fundamental Law of Active Management refers to the number of independent active decisions made per year, not necessarily the number of securities.

Option A - Correct: When derivatives are used for hedging, the portfolio can make multiple independent decisions about the same underlying security. For example:

• A decision about the stock itself
• A decision about options on the stock
• A decision about futures on the stock

Each of these represents an independent active decision, so breadth can exceed the number of securities.

Option B - Incorrect: When return forecasts from period to period are correlated, this actually reduces the effective breadth because the decisions are not truly independent. Correlated forecasts mean less independent information.

Option C - Incorrect: Overweighting all stocks in a given industry represents a single decision about the industry, not multiple independent decisions about individual stocks. This would actually reduce breadth compared to making independent decisions about each stock.

Therefore, breadth can be greater than the number of securities when derivatives create additional independent decision opportunities.