Exchange traded funds that seek to replicate strategies used by hedge funds remain a small part of the business although two ETFs in the category have each gathered $200 million in assets.

The largest “hedge fund” ETFs are WisdomTree Managed Futures Strategy Fund (WDTI - News) and IndexIQ Hedge Multi-Strategy Tracker (QAI - News).

ETFs in the space are also sometimes labeled as “alternative” funds.

It’s important to understand that these ETFs are not “funds of funds.” In other words, they don’t make direct investments in hedge funds.

Instead, their tracking indices attempt to mimic hedge fund strategies by shifting the portfolio into various asset classes, such as stocks, bonds and cash. Some of the funds invest in other ETFs.

“WisdomTree Managed Futures Strategy (WDTI) democratizes a managed futures strategy, which previously have been limited to expensive or hard-to-access funds. It aims to be a low-volatility, uncorrelated diversifier and, therefore, is suitable as a satellite holding,” Morningstar says in an analyst report on the ETF.

Performance has been lackluster the past year. For the 12 months ended May 24, the ETF is down 17.3%, compared with a 2.6% gain for the S&P 500, according to Morningstar.

QAI is barely positive for the trailing 12 months and has posted a three-year annualized return of 2,9%, versus 16.6% for the S&P 500.

In the mutual fund business, funds of hedge funds are fighting to stay relevant, Reuters reported Friday.

“Fund of funds charge their investors fees for selecting and then investing in hedge fund managers, and have proved popular with clients making their first move into these so-called alternative investments,” according to the report. “But the sector has also faced criticism for high fees and is yet to recover from redemptions during the financial crisis. Returns have also been questioned.”

Other exchange traded products in the loosely-defined hedge fund/alternative category include Credit Suisse Merger Arbitrage ETN (CSMA - News), iShares Diversified Alternatives (ALT - News), ProShares Hedge Replication (HDG - News) and SPDR Multi-Asset Real Return (RLY - News).

IndexIQ Hedge Multi-Strategy Tracker