If you can't beat 'em, join 'em. But what if you can't join 'em, either?

That's the predicament mutual fund managers face in meeting increasing competition from the fast-growing hedge fund industry.

One obvious gambit for mutuals is to take on the upstarts at their own game, creating funds that incorporate typical hedge fund methods, such as mixing long and short positions in the same portfolio.

Only a few mutuals have had much success with long-short or its distant cousin, "market neutral" strategies, which combine stakes on rising stock prices (long positions) with bets on declines (shorts).

Bloomberg tables list only 29 mutual funds in a loosely defined market-neutral category, averaging a modest 2.4 percent annual return over the past three years through the end of last week. Among all stock funds tracked by Bloomberg, by contrast, the average annualized three-year return has been 10.9 percent.

Various explanations have been advanced.

"It's a very different time frame, and a very different type of research," says Robert C. Pozen, chairman of MFS Investment Management in Boston, which manages about $150 billion in mutual funds and other accounts.

"We've already had plenty of instances in which these types of funds have crashed and burned," wrote Kunal Kapoor, director of mutual fund analysis at Morningstar Inc., in a recent Web site commentary.

Amid a bear stock market and trading scandals, it's also been suggested that mutual funds have been wary of trying bold new ventures these past few years. Most mutual fund managers and fund categories that have prospered lately have a distinctly conservative bent.

Charles S. Bath, who helps manage the $140 million Diamond Hill Focus Long-Short Fund, disputes the never-the-twain-shall-meet argument.

"People who can afford hedge funds have long been eager to embrace the idea of long-short investing," he said in an interview at a recent Morningstar investment conference in Chicago. "Why shouldn't retail investors be able to do the same thing?"

"Our approach is more long-term in nature," he said. "It's the same procedure going short a stock as when you're going long. If I find a security that's way overvalued, I have an opportunity to make money in that security as well."

Bath acknowledges the extra costs involved in selling short. These are not so extreme, he says, in an era of low interest rates and relatively low dividend yields on stocks.

In theory at least, investors' appetite for more sophisticated strategies stands to increase if returns for long-only investors stay low in coming years.

So far this year, Bloomberg data show the average stock fund with a scant 0.3 percent return and the average bond fund 2 percent. The average seven-day yield on money market funds recently stood at 2.5 percent, according to researchers iMoneyNet.

These aren't high competitive barriers to hurdle. Still, both hedge funds and hedge-style mutuals have had trouble doing any better in 2005. The Bloomberg market-neutral category of mutuals has returned 1.5 percent year to date.

There are numerous signs that some hedge fund strategies, including long-short, are getting tougher to exploit. The pursuit of "absolute return," as it is known in the investment business, is a zero-sum game.

That makes it more difficult, most of the time, than long-only investing in stocks, which naturally tend to rise with economic growth, or in bonds, where interest payments make a regular, positive contribution to investors' total return.

In the diverse world of hedge funds, there may be as many different strategies as there are funds -- about 8,000, according to recent estimates. Some individual hedge-style mutuals may do well in this heterogeneous environment.

But as a group their prospects look pretty dim. They didn't make much of an impact when the field was relatively small and full of unexplored territory. It will only get harder and harder for them to succeed in the more crowded, contentious environment of the present and foreseeable future.