Build a better mousetrap, and the world will beat a path to your door. For investment firms, the "better mousetrap" is a fund that has appeal because it promises a good return without exposing the customer to more risk than he can bear.

For more than a decade, contenders for the "better mousetrap" designation have included mutual funds that use hedge fund strategies. Such funds seemed to offer the best of both worlds: hedge-fund-like diversity and ability to adapt to different market environments without costing as much to participate. And they have the liquidity and transparency (investors can see how and where their money is invested) of mutual funds.

The traditional mutual fund went long on a mix of stocks, but that was just a part of the repertoire of these alternative funds. They also do things that were traditionally the province of hedge funds, selling short, investing in derivatives, managing futures and engaging in arbitrage.

After gradual growth for a few years, the popularity of hedge-style mutual funds exploded after the financial crisis of 2008 as investors, especially those close to retirement, sought ways to protect their nest eggs against calamity. These funds were viewed as better positioned to defend assets in a bear market, said Josh Charlson, director of alternative funds research for Morningstar.

Meanwhile, a lot of hedge funds had not been doing much hedging, Charlson said. They were pursuing big returns, and they took a beating, he added.

Hedge-fund-style mutual funds pursue a wide variety of strategies and it is difficult to generalize about them, but they can be a good way to balance a portfolio and help preserve assets, Charlson said.

After the trauma of 2008, hedge-fund-like mutual funds offered shelter from the storm. Many investors cared more about shelter than chasing double-digit returns, and firms created products to accommodate them.

According to Morningstar, the assets invested in alternative mutual funds (not all alternative funds are hedge-like, but many could be called that) grew from $36.4 billion at end of 2008 to $49.6 billion at the end of 2009. They went from $95 billion at the end of 2012 to $139.4 billion at the end of 2013, a 47 percent increase.

There were 514 alternative funds at the end of 2008, according to Morningstar. That grew to 914 funds at the end of 2012. The number jumped to 1,153 at the end of 2013. There were 1,199 such funds at the end of May.

Why the big jump in 2013?

"I don't think there's anything magical about 2013," Charlson said. " I think that something of a tipping point has been reached where product manufacturers have recognized the need and potential for alternative vehicles and have put a lot of development over the past couple of years that came to fruition last year."

Managed Futures Funds

Included in the global hedge fund universe are managed futures funds, a category that has done poorly over the last few years but could be poised for a rebound. One company in the space, Denver-based 361 Capital LLC, started 361 Managed Futures Strategies Fund in December 2011. The fund has had positive returns during a period when other futures funds have had negative results, said Brian Cunningham, president and chief investment officer of 361 Capital.

The fund trades future contracts that bet on what the domestic stock indexes, such as the S&P 500, are going to do over the short term, he said. The fund typical trades futures pegged to just three days ahead, Cunningham said.

361 tries to zig when others zag, he said. "It's a countertrend fund," he said. "We look for opportunities where (stocks) are overbought or oversold." The fund has $636 million in assets and it plans to close to investors when that total reaches $1 billion, Cunningham said.

If it went above $1 billion, the fund might not be agile enough to trade successfully, he said. Changing the strategy of a huge hedge fund is like trying to turn a battleship around, he explained.

The company started another managed futures fund, 361 Global Managed Futures Strategy, in February, Cunningham said. That fund trades futures based on the indexes of foreign stock markets.

The domestic futures fund, and the new one, are marketed almost exclusively through registered investment advisors, he said. But many of them advise clients who would not be considered wealthy, he said.

The 361 domestic futures fund had a three-year return of 1.094 percent and a one-year return of  3.881 percent, according to Morningstar.

Another reason hedge-like mutual funds appeal to investors is they don't charge a performance commission, Cunningham said.  Hedge funds generally charge 20 percent on positive returns, while hedge-like mutual funds generally charge a 2 percent fee on the amount invested.