"Liquid alternatives" have been the growth story for the U.S. mutual fund industry this year. Through the end of June, the alternative fund category reached $156 billion in total assets and a one-year organic AUM growth rate of 30.3%, according to Morningstar. In contrast, U.S. equity funds grew AUM by 1%; taxable bond funds declined by 0.6% over the same period.

In the first half of 2014, hedge funds also enjoyed strong growth, with AUM rising to a record $2.35 trillion at the end of the second quarter. The hedge fund industry captured $57 billion in net cash flow through the first six months of this year, according to Hedge Fund Research.

Assets are flooding into both liquid alternatives (alternative mutual funds) and hedge funds, but there is another story swirling beneath the surface. Just as ETFs have become serious competition for index mutual funds, liquid alternatives are starting to rival hedge funds.