I'll add that some of these sentiments are cyclical. We have been in an environment for the past half decade where the greatest engines of growth were the megacap leading tech companies. When the largest are in the lead like that it is difficult to differentiate versus the indices. Second, this has been a tremendous bull market. In this kind of market nearly every hedge is a bad hedge which doesn't mean it wasn't a very prudent hedge ex ante.
A flat market is in many ways the best place for actively managed long-short funds to differentiate themselves. Given where overall market valuations are we are probably past the point of double digit market gains for a while (although I could have said that years ago). So I think that skillful active managers will be better positioned. That said, I recognize that I am an active manager so 1. I may be talking my own biases but 2. I think I can differentiate real investment skill from charlatans, which is very hard for even very smart non-professional investors
Empirically I have outperformed over the past two decades. But lets qualify that the backdrop market environment matters. If the market surges straight up 12-18% a year for years on end I will tend to drag. As a value oriented investor I get less interested when valuations are higher which admittedly can cause underperformance if momentum keeps pushing things up. You can't get off the train too early. I saw too many of my peers think the bull ride was over in 2012/2013 because they got too anchored to post-crisis valuations and failed to see normalized valuations as appropriate.
When the market churns flat I tend to outperform because I have a sizable yield component and my individual name alpha shows its strength. When the market crashed in 2008 I ended up the year on short positions so that really impacts longer run outperformance. In December I went on a shopping spree after being defensively positioned into it which left me much better off than if I had passively been long the whole time.
My point is that no one strategy fits all investing risk thresholds or environments. I like to aim for a nice 7-12%/yr with minimal drawdown volatility and hedges against nasty things happening. I look "stupid" if the market is up 20% in a given year and I am not. Over the longer term nasty things seem to happen every X years which has vindicated the approach thus far.
A flat market is in many ways the best place for actively managed long-short funds to differentiate themselves. Given where overall market valuations are we are probably past the point of double digit market gains for a while (although I could have said that years ago). So I think that skillful active managers will be better positioned. That said, I recognize that I am an active manager so 1. I may be talking my own biases but 2. I think I can differentiate real investment skill from charlatans, which is very hard for even very smart non-professional investors