Hedge Fund Cover Without the Hedge Fund Fees

Most people think hedge funds aim to shoot the lights out and return a zillion percent. The funds are mocked for not beating the S&P 500 Index, which is up 136 percent over five years. Not to defend hedge funds, but, as the name suggests, many of them are actually just looking to hedge stock and bond exposure. They're designed to get positive returns regardless of market conditions, and to not move in lockstep with the broad markets.

With the stock market rally feeling tired and the threat of rising rates lingering, more investors are turning to “alternative” or “liquid alt” mutual funds and ETFs to diversify portfolios and dampen volatility. Assets in alternative strategy mutual funds -- a category that includes long/short equity and market-neutral funds -- have swelled to $140 billion from $22 billion a decade ago, according to Morningstar Inc. Now, alternative ETFs are attracting attention. At $1.4 billion, assets have more or less doubled from a year ago.