[Chart] "Hedged" Funds... or Not?

Quite a chart in a broader story on recent hedge fund performance in in The Economist.  While the HFRI Composite Index is obviously a collection of many hedge funds, it shows, as a whole the term 'hedge' seems to be less than advertised.



I wonder if this has to do with the influx of new entrants over the past 15 years.  To that end, in the first half of the 1990s, the hedge fund index was a bit less correlated and also outperformed. That began to change in the latter 90s when the hedge fund industry really began to boom.  There was a shining moment in the 2000-2002 bear as the index stayed 'flattish' as the S&P 500 was crushed, but from 2003 the HFRI index looks like nothing other than a S&P 500 ETF tracking fund, with the only saving grace less losses in the depths of the selloff in 2008/early 2009.