According to a recent article in The Wall Street Journal, hedge funds were more or less flat in April, right in stride with the stock market. This leaves the average fund right where it was at the end of March, up about 7%. The good news is this marks one of the best single quarters in industry history. The bad news is that funds have gained barely half the 12% return of the S&P.

Divorced from all the mystery, hedge funds are merely investment partnerships where a fund manager gets paid an annual fee and a chunk of any upside performance ("carried interest"). Typically, the fee is 2% of assets under management. Except for the largest of funds, 2% isn't any great shakes. The real money comes from the carried interest, which can amount to 20% of any gains.

A 20% payout is a good deal for both the manager and the investors when the funds are clicking all cylinders. John Paulson famously made 600% return in 2008; sadly, he lost over 50% last year. Though this example is extreme, it turns out that finding funds that outperform the market are increasingly hard to find.

According to various sources, hedge funds as a total asset class haven't outperformed the S&P 500 since 2008, when they lost 26% compared to the S&P's 37% drop. Funds lagged again last year, posting marginal losses in a flat market.

Most investors would be reluctant to hand over one-fifth of their gains to a manager who can't outperform an index fund.

In the attached clip, Breakout welcomes Maz Jadallah, the founder of Alphaclone.com, a firm that tracks hedge funds to divine the strategies of top performers. Jadallah says the volatility of the last few years has been tough for the hedgies to handle.

"Hedge funds tend not to be market timers," says Jadallah. That inflexibility leaves them "susceptible to sudden movements in the market."

According to Jadallah, a lack of transparency and the seemingly impenetrable "sophistication" of hedge fund strategies renders imitating such under-performance beyond the ken of most individual investors. What makes matters worse is that some of the premiere funds are closed off, even to those who meet the SEC's standard as sophisticated investors.

Jadallah's firm culls filings and records of 320 different hedge funds, trying to find the best of breed and pull back the curtain a bit on how they go about generating outsized returns. Customers can then "construct equity strategies based on hedge funds in [that] universe." He suggests spreading your bets, investing in multiple funds if possible—sort of like buying a diversified portfolio of stocks, only with higher fees and no transparency.