I found this article This article is profoundly disturbing. It suggests that CAPM, the cornerstone of modern portfolio theory, is empirically falsifiable. I didn't pick this up when it first appeared, but the theory was mentioned in the current Buttonwood column in the Economist. In this latter article Buttonwood makes the comment "All this confirms what most investors who lived through the dotcom bubble must feel: investors are not always rational and markets are not always efficient. But, judging by the subprime saga, spotting those irrational moments is no easier than it ever was."
All this suggests that infrastructure funds and utilities are where we should be investing. These were attractive anyway because of their lack of correlation with equity markets, but if they produce higher risk-adjusted returns too, there should be no holding us back. I suspect that fundamentally the discipline of paying out a large proportion of profits is likely to produce a better return to investors. There may be no magic in leverage, but there is a magic in financial discipline.
