By Brett Arends

Should you adopt a few hedge-fund strategies in your portfolio?

At first blush the idea seems perverse. Hedge funds are on track for another mediocre year. The average such fund has underperformed a plain-vanilla 60-40 mix of stocks and bonds, as tracked by products such as the Vanguard Balanced Index Fund, in each of the past five years.

Yet there might be a case for considering something more exotic.

Equities and fixed-income markets have become increasingly expensive. This raises the risk that future returns from such mainstream investments won't be as good as they have been in the past.

Meanwhile, new research by strategists at Société Générale unit SG Securities, conducted on behalf of its institutional clients, has found that adding a dose of "alternative" strategies to a mainstream portfolio of stocks and bonds would have boosted returns going back to at least the mid-1990s. They also lowered volatility, or sharp swings in value.

The strategies included betting on the carry trade, which means borrowing in currencies with low interest rates and lending in those with higher rates, or betting on the price difference between the current "spot" price for commodities and the price for delivery at some future period, or on the likelihood that low-risk stocks will outperform higher-risk ones.

Not only did the strategies perform well in their own right, but in many cases they produced returns that were uncorrelated with stocks and bonds, meaning they tend to zig when most of your other investments zag.

Shifting 10% of a traditional portfolio of stocks and bonds into a diversified basket of 10 such strategies added about one percentage point a year to returns, while shifting 20% of the portfolio added two percentage points, according to SG. In both cases the portfolios then experienced lower volatility, because many of these strategies are uncorrelated with stocks and bonds.

Some of these strategies produced surprisingly strong returns with low risk. SG found that the popular carry trade has produced excess returns over that of government bonds by six percentage points a year since 2002--with very little volatility.

"These are the true diversifiers in the portfolio," says Mark Wilson, chief investment officer at the Tarbox Group, a wealth adviser in Newport Beach, Calif., with $420 million under management, which has used such strategies for clients on occasion.

The problem, as so often, comes when you try to put this into practice.

Many of these strategies are so complex and involved they could be pursued only by professionals operating at a hedge fund or an investment bank. Even the most basic would require a fair amount of expertise and work. Meanwhile, hedge funds bring their own problems for investors. Not only are they mostly accessible to high-net-worth investors, but they typically entail high fees which will soak up a large portion of your profits--assuming the funds are profitable.

Some mutual funds seek to offer these strategies for retail investors. After the 2008 financial crisis a number of funds labeled "absolute return" or "total return" sprung up with the aim of providing uncorrelated returns.

They are a mixed group. "There are many total-return funds out there that seem to be charging a premium for doing nothing other than stocks and bonds," says Marc Roland, investment manager at Dean Roland Russell, a wealth-management firm in San Diego that oversees $210 million.

Lipper's index of absolute-return mutual funds--which use a grab bag of strategies--has produced annualized returns of 3% over the past five years, compared with 16% for the S&P 500 and 11% for the Vanguard Balanced Index Fund. Many have fees approaching 2%, many times that of low-cost index funds.

Some lower-cost focused products target a specific strategy. Often these are exchange-traded notes, which are contracts issued by an investment bank that promise to mimic the performance of a particular index.

Stephen Craffen, a portfolio manager at Stonegate Wealth Management in Oakland, N.J., which has $140 million under management, frequently allocates 10% of client portfolios to the iPath S&P 500 Dynamic VIX ETN. The ETN tracks the Chicago Board Options Exchange Volatility Index, or VIX, which typically spikes when the stock market hits turmoil.

A portfolio composed of 90% in the S&P 500 index of U.S. stocks and 10% in the iPath S&P 500 Dynamic VIX ETN has produced higher returns with lower volatility than 100% allocated to stocks, Mr. Craffen says. The ETN charges fees of 0.95% a year, or $95 per $10,000 invested.

A few of the strategies highlighted by SG Securities can be accessed through low-cost exchange-traded funds. For example, some of the most successful historically have been to bet that certain types of stocks will outperform others over the medium to long term. Types of stocks typically favored in these strategies have included "value" stocks--meaning those inexpensive in relation to fundamentals such as profits and net assets--"low volatility," or low-risk, stocks, and "high-quality" stocks, meaning those of companies with strong fundamentals and persistent profits.

Ordinary investors today have access to a plethora of low-cost exchange-traded funds that invest in value, low-volatility or quality stocks. These include the iShares MSCI USA Quality Factor ETF, with fees of 0.15%, and the SPDR MSCI EAFE Quality Mix and SPDR MSCI Emerging Markets Quality Mix ETFs, each with fees of 0.3%, which invest in developed and emerging overseas stock markets, respectively.

Still, advisers say, investors thinking about adding alternative strategies to their portfolio need to ask themselves, and their money managers, some hard questions first. Do you really understand why you are investing? Do you understand the strategy, the fees and the risks? Are you investing in strategies in the hope of boosting returns or simply reducing volatility?

Those adding more complex or more volatile strategies need to tread carefully and do their homework.

Advisers typically recommend adding no more than around 10% of a portfolio to higher-risk alternative strategies, such as betting on volatility.

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