"These strategies have not helped in the bull market but tough times will be the litmus test," said Jeff Coons, president and co-director of research at Manning & Napier, which manages about $50 billion, including about $768 million in target date funds.

Last summer, Rochester, New York-based Manning & Napier's target date funds began trading fixed income futures contracts to hedge against interest rate risk, as well as stock option calls and puts on stocks it holds in its portfolios to hedge against equity market volatility.

Employers with 401(k) plans and the advisers who serve them worry that these additions mean more complexity.

"How are we supposed to evaluate and monitor these investments?" said Don Stone, director of defined contribution strategy and product development for Pavilion Advisory Group, which advises 401(k) plans. "The fact is it is hard and there has to be a certain level of trust in the managers."

Adding Alternatives
Mutual funds using hedge fund strategies have grown in popularity since the financial crisis and had $158 billion in assets as of October, up from $37.6 billion at year-end 2008, according to Morningstar.

When average investors assess how risky their target date funds are, however, most just look at the allocation to equity versus fixed income, said Jim Lauder, portfolio manager of Wells Fargo's Advantage Dow Jones Target Date Funds, which are index-based.

By adding hedge-like strategies to its target date funds, firms like BlackRock expect they are reducing the risks of their portfolios.

Over the past 12 months, BlackRock has added alternative strategies to its $200 million Lifepath Active target date funds. The funds' allocation to hedge fund strategies rises as the investor gets closer to retirement, with the current maximum percentage allocated to them "in the high teens," said Dagmar Nikles, head of investment strategy for BlackRock's U.S. and Canada defined contribution group.

BlackRock has offset any added expense through other enhancements to the funds. As such, the overall expense of the funds hasn't risen and is below average.

Manning & Napier bought a team of portfolio managers earlier in the year that specializes in managed futures and wanted to add the capability to its target funds. The goal is to protect investors at or near retirement from interest-rate risk, Coons said.