In mutual funds and exchange-traded funds (ETFs), one of the biggest stories of 2014 will be the growth of "liquid alternatives." Large asset managers are putting big budgets behind new fund launches and programs to expand advisor and investor education. Leading hedge fund managers are evaluating the merits of expanding by launching registered funds.

For all of 2013, Morningstar reported that alternative mutual funds captured $40.2 billion in net inflows and grew to $132 billion in total assets, representing a 43.9% organic growth rate (from inflows). In January of 2014, the torrid growth pace continued with $4.4 billion in inflows. Twice as much money has flowed into alternative mutual funds over the past year as into all U.S. taxable bond funds combined!

Morningstar now tracks about 1,400 alternative mutual funds and ETFs in 13 categories, and hundreds more will be launched in 2014. In January, the giant institutional money manager Invesco launched six new alternative mutual funds. Combining mutual funds and its PowerShares ETFs, Invesco now sponsors 32 liquid alternative funds.