15. The following is an excerpt from Marshall E. Blume regarding the Prudent Man Rule:

According to this rule, a trust manager must invest in each asset on its own merit. If each asset is safe, then the total portfolio will be safe. For example, futures cannot be used under the Prudent Man rule because they are inherently risky—even though investment managers now know that when futures are combined with other assets, they can reduce portfolio risk.

….

Markowitz focused on the portfolio as a whole, not explicitly on the individual assets in the portfolio, which was clearly at odds with the Prudent Man rule for personal trusts. In fact, under the Employee Retirement Income Security Act passed in the mid-1970s, investing in derivatives to reduce the risk of a portfolio was, for the most part, legally imprudent.24 Why is the prudent man rule for investing personal trusts in conflict with the way to construct a portfolio as suggested by Markowitz portfolio theory?