Alternative or hedged mutual funds are gaining in popularity as investment strategists predict increasing market volatility with the onset of higher interest rates. One thing to remember when selecting an alternative fund, said 361 Capital CEO Tom Florence, is that bigger is not necessarily better. 'In many of the strategies in alternatives, there’s capacity constraint and there’s already examples in the marketplace where funds have taken on a lot of capacity because they’re very good marketing machines. The returns have decreased and, in the end, it’s been not a good thing for the investors,' said Florence. 'At 361 we’re very focused on is capacity and making sure we limit capacity within our funds.' 361 manages a number of alternative mutual fund strategies including long/short equity funds, managed futures and global macro funds.

More from Video

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

Video: You Could Live in a Ritz-Carlton or St. Regis Home

Video: You Could Live in a Ritz-Carlton or St. Regis Home

KPMG Chair & CEO: There's No One-Size-Fits-All Approach to Diversity

KPMG Chair & CEO: There's No One-Size-Fits-All Approach to Diversity

Best Buy's Billionaire Founder: We Were 'Late to the Game' in Online Shopping

Best Buy's Billionaire Founder: We Were 'Late to the Game' in Online Shopping

Jim Cramer: Intuit Had a Fantastic Quarter

Jim Cramer: Intuit Had a Fantastic Quarter