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3D Capital, Adapting And Evolving To Achieve Profit Nearly 70% Of The Time The S&P 500 Is Down

Summary

3D Capital Management is an alternative active equity specialist that believes in Daily risk management, a Dynamic investment approach, and great Defense.

3D’s Intraday Program uses trend-following, mean-reverting and pattern recognition strategies applied to multiple global markets and asset classes.

3D’s programs tend to perform better in medium to high volatility environments.

Eric Dugan’s 25 year investment career includes working for two famous investment managers: Monroe Trout, the legendary investment manager who was featured in New Market Wizards, and Phil Yang the founder of Willowbridge Associates. Eric says, “Managing money, trading and conducting research at these two firms, and trading globally diversified portfolios around the world in the Pacific Rim, European, and US markets gave me the knowledge and experience to start my own firm.”

Eric began trading his own proprietary account in 2008, and launched 3D Capital Management in 2010. He saw the need for a product that would enable the investor to take advantage of daily downturns in the stock market rather than sit idly by and watch their unrealized gains erode during equity market retracements.

3D Capital Management is an alternative active equity specialist that believes in Daily risk management, a Dynamic investment approach, and great Defense. Eric, 3D’s President and Portfolio Manager, believes his firm is one of the few firms that utilize a global macro investment approach that is applied to one market, the S&P 500. Investment decisions are 100% systematic, based on the firm’s global macro analysis of factors affecting the S&P 500. Eric says “The combination of 3D’s dynamic, global macro approach, unwavering discipline and mindset that sometimes the best offense is a great defense, have all contributed to 3D’s success.”

The only financial instrument 3D Capital utilizes is the E-mini S&P 500 Futures contract. As such, 3D Capital is registered as a CTA, and Eric feels his programs can be used as an alternative investment, an active equity investment, or both.

The relevance of what 3D specializes in is significant, especially when you consider the amount of money invested in the S&P 500, and US equities in general. A recent study revealed that investors have allocated $23 trillion to the S&P 500 Index. Eric agrees that the U.S. equity market has proven to be a very important part of many investors’ portfolios and he believes it still can be, as long as the investment strategy has the ability to take advantage of downturns in the market. Eric says, “The recent bull market has certainly rewarded the long-only investor, but protecting those equity market gains in a long-only strategy could prove difficult nine plus years into the current record setting bull market.”

“Not to state the obvious, but investors who allocate to long-only equity products are guaranteed to lose money when the stock market goes down. I built 3D Capital Management to change that,” he declared.

Eric's independent live trading results date back to January 2008 when Eric began trading his own proprietary account, which he converted into 3D’s first program called the 3D Bull Program. This program was designed to capture the upside of the S&P 500 with lower volatility. The Bull Program can either be long the S&P 500 or move to cash depending on the signals generated by 3D’s system. Dugan is pleased to report that in 2008 when the S&P 500 was down -37%, the Bull Program was up 3.3%, and in 2009 the Bull Program was up 20.3%. The only down year in the Bull Program’s history is a -1.22% return in 2016. Note these are gross returns.

The success of his first program, and a desire to take greater advantage of the upward and downward moves in the S&P 500, led to the creation of 3D’s second program in May 2010 called the 3D S&P Program. CTA Intelligence awarded the 3D S&P Program “Best Specialized CTA” in 2015. The 3D S&P Program was the catalyst for the 3D Intraday Program. Dugan saw a need for a capital efficient product that could identify daily strength and weakness without typically carrying positions overnight.

Dugan said he is fortunate to have spent the first 6 years of his career in the 90’s managing the overnight trading desk for Monroe Trout. This provided his foundation and understanding of what is moving the S&P 500 and global markets. He added that “sitting in front of his screens every day and being completely submerged in the global marketplace for 25 years has enabled him to identify statistically significant patterns, behaviors and inter-market dependencies that he has been able to convert into a rules-based systematic approach”. He believes that investing without emotion is a key to long-term success. Dugan’s dynamic and nimble investment approach has been influenced by his favorite Paul Tudor Jones quote “You adapt, evolve, compete or die.”

This mentality is central to the evolution of 3D’s programs and is what led to the creation of the 3D Intraday Program, which is one of two programs that 3D currently offers to qualified investors. The Intraday Program is an absolute return oriented program and an ideal hedging vehicle that seeks to generate positive returns and consistently profit and outperform the S&P 500 Index in a down market. The program has been trading with client money for nearly seven years and has generated consistent positive net returns that have outperformed most of the managed future benchmarks since the program’s inception. Eric says “I’m proud of the fact that CTA Intelligence awarded the 3D Intraday Program “Best Specialized CTA” in 2016, and that the program is living up to its investment objective and has profited nearly 70% of the time the S&P 500 is down on the month.” He added, “It is important to mention that this was accomplished during one of the greatest bull markets in history. The correlation of the 3D Intraday Program to the S&P 500 during this time period is -0.43%.”

Dugan said that 3D’s Intraday Program uses trend-following, mean-reverting and pattern recognition strategies applied to multiple global markets and asset classes to identify and capture daily movements both up and down in the S&P 500. He said that the Nikkei, London Gas Oil, Silver, U.S. Bonds and the Yen are some of the markets he uses to forecast the daily direction of the S&P 500. The live track record of the 3D Intraday Program dates back to February 2011.

The trend-following component of the 3D Intraday Program was made available as a standalone program in April 2014. Both of 3D’s programs that are available for investment seek to identify daily strength and weakness in the S&P 500. The 3D Intraday Program is more defensive, and puts more emphasis on identifying stock market weakness giving it a short bias. This bias sets the expectation for the program to consistently outperform the S&P 500 during down months. The 3D Intraday Breakout Program is a pure trend-following strategy. He adds “It is exciting to share the news that the 3D Intraday Breakout Program was awarded a Top 10 BarclayHedge award in June 2017 for Stock Index Trading.” Eric is pleased to note that some of 3D’s investors allocate to both programs.

Eric said, “Because our programs are dynamic and typically don’t hold positions overnight we are able to adapt to different trading environments and our systems attempt to respond to the prevailing message of the market every day.” The programs will either be long, short or flat (no position) in the S&P 500 on a daily basis. The strategies are capital efficient with a relatively low average margin to equity of approximately 3%. The programs are offered to qualified investors via separately managed accounts that have a relatively low minimum investment. Eric loves separately managed accounts because it offers each investor the greatest amount of liquidity (daily), transparency, flexibility, and capital efficiency.

Eric explained that 3D’s programs tend to perform better in medium to high volatility environments. Since the 2008 global economic meltdown, the S&P 500 Index has endured a financial crisis and a -50% plunge as well as a 300% rally to new all-time highs. During this timeframe the VIX Index, which shows the market's expectation of 30-day volatility, has exhibited low and high volatility regimes having traded between 9 and 79. Eric believes a market with this kind of volatility certainly warrants a daily risk managed approach; especially for equity market investors who are interested in preservation of capital.

Eric adds “with the S&P 500 trading at all-time highs and looming fundamental, technical and geopolitical headwinds, now is a good time for investors to think about rebalancing, locking in some equity gains and allocating to 3D Capital’s award winning alternative active equity programs that have a proven track record of being able to profit even when the stock market declines.”

“Trading my programs with real money since 2008, in a disciplined and purposeful manner, has provided 3D’s investors real award winning results. 3D Capital Management has performed in line with our expectations during market environments with high and low market volatility.
We look forward to continuing to provide our investors with lower volatility investment programs that generate consistent uncorrelated positive returns,” he said.

3D Capital Management awards include:
• 16 BarclayHedge top ten awards for Short Term, Systematic and Stock Index trading
• Most recent BarclayHedge award was for Stock Index trading in June 2017
• CTA Intelligence named 3D Capital Management Best Specialized CTA for 2015 and 2016
• Most Outstanding Systematic CTA (3 years) by Acquisition International 2016
• Trading Advisor of the Month by Wealth and Finance 2015
• Featured in Active Trader Magazine’s Spotlight in 2014

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.