Modern portfolio theory has led to important changes in fiduciary investing. So-called index or market funds -- portfolios that attempt to match rather than to beat the averages -- have become commonplace. Market funds are relatively passive; the fund buys and holds the market-matching portfolio, eschewing the research and trading costs of active management. Large pension funds commonly place a portion of their assets into such vehicles, while devoting the remainder to active management (the so-called "core/non-core" strategy). Total indexed assets of all tax-exempt U.S. institutional investors were reckoned in December 1993 at $457 billion. Sabine Schramm, "Indexing Shows Small Increase," Pensions & Investments, Feb. 7, 1994 at 2. The financial press reports constant efforts among investment professionals to discern optimal levels of active and passive management for large pension portfolios. Steve Hemmerick, "Some Hear the 'Death Rattle' of Indexing," Pensions & Investments, Jul. 26 1993 at 1; Joel Chernoff, "California May Slice Indexing," Pensions & Investments, Nov. 9, 1992 at 1.

The Department of Labor has recognized the spread of modern portfolio theory. Specifically:

"The Department is of the opinion that (a) generally, the relative riskiness of a specific investment or investment course of action does not render such investment or investment course of action either per se prudent or per se imprudent, and (b) the prudence of an investment decision should not be judged without regard to the role that the proposed investment or investment course of action plays within the overall plan portfolio. Thus, although securities issued by a small or new company may be a riskier investment than securities issued by a 'blue chip' company, the investment in the former company may be entirely proper under the Act's 'prudence' rule." 44 Fed. Reg. 37,221, at 37,222 (June. 26, 1979)