Are hedge fund returns comparable?

In what is evidently being billed as a sign of strength in the hedge fund industry, hedge funds had a strong first half of 2007, in spite of increased volatility. According to MarketWatch, "According to Chicago-based industry data group Hedge Fund Research, a composite index of some 2,000 hedge funds generated returns net of fees of 7.7% in the first half of the year. That outpaces the 6.9% gain achieved by the benchmark Standard & Poor's 500 index during the same period."

But here's the thing. Hedge funds manage about $1.7 trillion dollars, and there are hundreds of different strategies. Some invest in products most investors have never heard of, like collateralized debt obligations. Others invest in value stocks, some trade pork bellies or currencies, and some daytrade penny stocks.

So how could you, and why would you, compare their performance to the S&P 500? Is that really any more meaningful than saying "$100 dollars invested in the averaged hedge fund outperformed the same amount of money bet each day on the Chicago White Sox (who have been a huge disappointment)?"

It's hard to know what exactly to do with data like the average return of the average hedge fund. But comparing it with the S&P 500 just seems pointless.