The tony hedge fund club beckons, but do you really want to be a member?

Traditionally, mutual funds have been for regular folks, and hedge funds, largely unregulated and aggressive portfolios with million-dollar minimums, have been for fat cats and institutions. But over the past three years, a spate of hedge fundlike mutual funds with freewheeling strategies and more modest minimums have cropped up. The latest example is the

Invesco Advantage

fund, run by a hedge-fund veteran,

which starts a subscription period on July 24.

The upshot: These high-octane funds may expose investors to more risk than they're used to, but if they boost fund companies' profits and help them stem the tide of managers heading for the more lucrative hedge fund hills, more may be on the way.

"I think most firms are thinking about it in one way or another," says Andrew Arnott, director of retail product management at Boston-based

John Hancock Funds

.

Hedge funds are typically designed to make money no matter what's going on in the market. Their hotshot managers can use risky tactics such as short-selling and derivatives to make big bets or hedges on the direction of security, currency or index prices. To make the gains -- and risks -- even more pronounced, they invest borrowed money, or leverage, to boot. Of course, these bets can lead to steep losses but they also can yield big gains.

In the

S&P 500's eight down quarters in the 1990s, the average hedge fund cumulatively lost just 0.7%, compared with losses of 37.2% for the average stock fund and 33.8% for the index, according to Knoxville, Tenn.-based

Van Hedge Fund Advisors

.

A fleet of mutual funds that mimic hedge funds by dedicating a significant portion of their assets to shorting, derivative or leveraged investing have rolled off the assembly line during the past 10 years. The list, though anecdotal, is long and growing.

There are some differences between these hedgelike mutual funds and hedge funds, beyond the investment minimums. Unlike hedge funds, which often have few limits on their tactics, these mutual funds typically have limits on the amount of the fund that can be leveraged or devoted to short sales. They also have to share their holdings with regulators and shareholders regularly, while most hedge funds keep their moves behind a curtain.

In addition, hedge funds typically charge a 1% management fee and take 20% of the fund's profits. While some of the hedgelike funds have some performance-based fees and their expenses are higher than most mutual funds, they're much cheaper than hedge funds.

Still, there are real, intentional similarities between this hedgelike fleet and the genuine article. Some firms, however, blanch at the hedge fund comparisons.

AIM's three "Opportunities" funds, of which only

(LCPAX)

Large-Cap Opportunities is currently open to new investors, blend stock buys and shorts to bet on rising and falling stock prices. The funds also can invest in derivatives and borrow up to one-third of the fund's assets to boost returns, but co-manager Brant DeMuth is careful about the hedge fund label.

"I would not call these hedge funds. Instead, I call them the most-sophisticated mutual fund you can buy," he says. But, he acknowledges, "There are hedge funds out there like ours."

Invesco was less coy about its new Advantage fund, which has leeway akin to AIM's Opportunities funds. A Wednesday press release introducing Advantage calls it "an aggressive hedge-like growth fund" using "alternative investment strategies, which historically have been available primarily to hedge funds."

Jaded investors' boredom with 20% returns appears to be a key driver of interest in these aggressive funds, whose once-taboo strategies help them swing for the seats. The forbidden fruit factor plays a role, too. For years, investors have been excluded from the exclusive hedge-club world and some are eager for the bragging rights and status that accompany entrance.

"They want to feel special. They want that access to unique products," says Hancock's Arnott, whose firm doesn't have a hedgelike fund, but is developing a closed-end tech fund that will give regular Joes significant exposure to venture capital investments.

Of course, investors in these funds don't just get the home-run swing, but also its sneaky little friend: risk.

Shorting, for instance, can be a risky tactic. When you own a stock, you can lose your entire investment if its price drops to zero. But when you short a stock, you can lose your entire investment and then some because the price can theoretically rise forever.

For proof of the risk-and-reward potential, look no further than

MFS

and its line of

Vertex

funds, which can sink all of their assets into short positions, emerging markets, and derivatives, in addition to leveraging up to 50% of the fund's assets. Vertex Contrarian tops all funds, with a 271.3% return over the past year, according to

Lipper

, but the fund probably never will be offered to U.S. investors because of its risk profile.

"The returns have been so good that expectations would be unrealistic," says MFS spokesman David Oliveri.

MFS, which claims to have invented the mutual fund and has more than $140 billion in assets, is making moves to launch Contrarian for foreign investors, but has no plans to launch the highflier stateside. The company's caution is somewhat understandable, because a blowup could tarnish the firm's lucrative reputation among brokers for running steady, large-cap growth funds such as the 76-year-old

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MFS Massachusetts Investors. In the U.S., the funds are available only to MFS employees, Oliveri says.

It's telling that most of these hedgelike funds, which are quick to close and often carry performance-based fees, are broker-sold and sport higher-than-usual, $10,000 minimum investments. Notable exceptions: The no-load

Paragon

funds have $5,000 minimums and the

(MNGLX)

Montgomery Global Long-Short's minimum is just $2,000, though it carries a 0.25% annual marketing fee to pay advisers.

Pitching through brokers with a higher minimum essentially builds in a suitability test and a leaning toward higher net worth investors, who often are assumed to be more schooled in investments.

Of course, these funds' unorthodox strategies can reduce risk as well. Shorting, after all, can help a fund manager post gains in a falling market as long as he or she picks the right stocks.

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AIM Small Cap Opportunities, since its July 1998 launch, hasn't had a negative quarter. Montgomery Global Long-Short has had only one since its launch at the start of 1998, and Vertex Contrarian's 26.9% return since the market peak on March 23 is third-best overall, according to Lipper.

Still, one wonders how many mutual fund managers out there are well-versed and comfortable with using derivatives and shorts, because they were taboo just a few years ago. Invesco tapped former hedge-fund manager Tom Samuelson to run Advantage, and AIM's DeMuth had eight years' experience in derivatives. He says less-experienced hands might not be so steady on the wheel.

"I'd caution an average investor to ask, 'Does this manager have experience using these tools (shorting/derivatives)?' Even at AIM I can look across the floor and see people who don't have experience doing this," DeMuth says.

The

Long-Term Capital

hedge fund's very-public collapse, as well as the recent falls from grace of hedge fund legends such as Julian Robertson and Stanley Druckenmiller, show that even tenured managers can misstep.

Despite the risks involved, fund companies soon may find they have to launch hedgelike funds to keep talented managers on board. Just last year, several managers left shops like

Fidelity,

Orbitex and

Monument to run hedge funds.

"There are more hedgelike funds out there, and I usually hear that it's a way to be competitive paywise," says Morningstar senior analyst Scott Cooley.

"I do think you're going to see more unique products (like Advantage) than 'me-too' funds," says Invesco spokeswoman Laura Parsons.