Okay, the risk-free rate had been zero for so long that excess return was essentially equal to mean return. That nit picked, the addition of any source of retu

Okay, the risk-free rate had been zero for so long that excess return was essentially equal to mean return. That nit picked, the addition of any source of return greater than the risk-free rate, if uncorrelated to the rest of the portfolio, will improve Sharpe. If the return is small, then the optimal allocation is small as well, but still nonzero. In CML terms, the existence of hedge funds as uncorrelated strategies changes the shape of the CML curve.