More Funds Are Hedging Their Bets

But Ferrell says he has been managing money in this style since 1998 -- this particular fund started in December 2002 -- and that "people who have taken the time to understand our strategy in the past have done well with us." In 2003 the fund was up 53%, but year-to-date it's down 4.5%, so it's definitely not for the faint of heart. Furthermore, trading costs of up to 8% on top of its expense ratio of 2.5% also weigh on its performance.

A mutual fund that uses a long/short strategy with far less turnover is the (NEEGX Quote)Needham Growth Fund which was started in May 2002. This fund only turns over about half its shares over the course of a year and caps out its short positions at 25% of the fund, leaving it with a bias towards the long side.

The fund has been guided by a new management team for just over a year now, which has made Morningstar analyst Todd Trubey cautious on the fund until the new managers -- let alone new investors -- grow comfortable with a somewhat "racy strategy."

"They need time to prove themselves," says Trubey. "It's like a great chef left the kitchen. Now they need to make sure they are producing the same quality dishes."