With the popularity of hedge funds on the rise, many retail investors may be interested in cashing in on the same kind of strategies in the more familiar format of mutual funds, but such funds have floundered. Among 29 mutual funds listed in Bloomberg that are in a market-neutral category, average return has been only 2.4% over the past three years ending June 24, said Bloomberg News columnist Chet Currier. Average stock funds posted 10.9% over the same period.

Market neutral funds balance stock purchases with short positions in an effort to capitalize on the market's ups and downs. However, it hasn't been a successful gambit for mutual funds, and "We've already had plenty of instances in which these types of funds have crashed and burned," commented Kunal Kapoor, director of mutual fund analysis at Morningstar.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.