Turner Investment Partners has long been known for offering growth funds. But the company recently departed from its traditional approach, introducing

Turner Spectrum Fund

(TSPEX)

, which takes short positions and resembles a hedge fund.

Designed to excel in down markets, the new fund aims to attract retail investors and institutions, including veteran users of hedge funds. "The objective is to deliver equity-like returns while producing half the volatility of the

S&P 500

," says Matthew Glaser, Turner's director of alternative strategies.

Turner is seeking to win customers at a time when plenty of investors are furious at hedge funds and other investments that are called alternative assets. Most hedge funds lost money last year, but what really angered investors was that many funds barred redemptions. Unable to bail out, investors were forced to continue paying high fees to funds that dropped relentlessly for months.

The new Turner fund offers hedge-like strategies packaged as an old-fashioned mutual fund. Traditional mutual funds may not come with much prestige, but they charge relatively low fees, and you can withdraw your money every day.

Turner isn't alone in its efforts to reach wary hedge fund investors. Several large hedge fund companies have recently introduced mutual funds. ACR Capital Management, which manages $19 billion, brought out

ACR Diversified Arbitrage Fund

(ADANX) - Get Report

, a mutual fund that specializes in convertible and merger arbitrage. Permal, which manages $20 billion, now offers

Legg Mason Permal Tactical Allocation

(LPTAX)

, a fund that follows a variety of strategies used by hedge funds, including trading currencies as well as holding stocks and bonds.

At a time when hedge funds have suffered setbacks, should you give the new mutual funds a look? Perhaps. To appreciate why, consider what happened to hedge funds last year. During 2008, the average hedge fund lost 22%, according to

Hennessee Group

. The losers included funds that sold short and used other strategies that should excel in downturns.

While that was a dismal showing, hedge funds outdid the S&P 500, which lost 39%. And many hedge funds did substantially better than the Hennessee average. According to Hennessee, categories that made money included merger arbitrage and health care. So investors could have trimmed their losses by adding a diversified basket of hedge funds to stock portfolios.

After witnessing the market turmoil, some investors may be inclined to dump hedge funds and shift to bonds, which outperformed last year. But there is no guarantee that bonds will outdo hedge funds in future downturns. Suppose interest rates and inflation rise sharply, as some economists now expect. If that happens, bond prices could fall, and stocks would face headwinds. "To prepare for future downturns, it makes sense to use some alternative strategies that can diversify portfolios," says Sanjay Yodh, managing director of alternative strategies for

Security Global Investors

, an investment adviser.

Those who decide to use a fund that hedges should recognize that most aren't cheap. Hedge funds typically charge 2% of assets as an annual fee, plus 20% of the profits. Mutual funds are less costly, but they still charge plenty because short selling and other strategies are expensive to execute. The average long-short mutual fund charges an expense ratio of 2.08%, according to

Morningstar

(MORN) - Get Report

.

For moderate fees, consider alternative mutual funds from Rydex Investments.

Rydex Alternative Strategies

(RYFDX)

charges an expense ratio of 1.76% and invests in a mix of strategies, including commodities and short selling.

For newcomers who want to dip a toe in the hedge waters, consider

Bridgeway Balanced Fund

(BRBPX) - Get Report

, which has an expense ratio of 0.88%. The mutual fund puts most of its assets in Treasury bills and stocks that track the S&P 500. In addition, portfolio manager Dick Cancelmo uses options trading to gain some income and protect against downturns. The aim of the strategy is to deliver 40% of the gains of the S&P 500 when the market rises, and 40% of the losses in downturns. "This is an alternative for investors who only want to take a limited amount of risk," Cancelmo says.

So far, Bridgeway has been on target, outperforming the benchmark in downturns and delivering part of the market's upside in good years. In 2006, the S&P 500 gained 16%, and Bridgeway returned 6.7%. In 2008, Bridgeway lost 19%, surpassing the S&P 500 by a wide margin. The fund has returned 1.2% annually during the five years ending in May, compared with minus 2% for the S&P 500.

For cautious investors who want to obtain some market appreciation without risking a repeat of last year, Bridgeway and some of the other funds that hedge could be intriguing choices. Those who have never used a hedge fund before should start slowly, putting a small percentage of assets into a mutual fund that may help to cushion downturns.

Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.