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Eric Dugan Matthias Knab, Opalesque: Eric Dugan, founder and Chief Investment Officer of 3D Capital Management, has been managing risk one day at a time for more than 30 years. He ran systematic trading for Monroe Trout, one of Jack Schwager's New Market Wizards, and worked alongside Phil Yang at Willowbridge Associates - two legendary billion-dollar fund managers. Since 2011, 3D has traded a live short-only S&P 500 program through some of the most and least volatile periods the index has seen. Today that short alpha engine sits inside 3D Hedged Equity. The firm's mission is simple: make the S&P 500 better by solving the problem of S&P declines. Dugan, who was a frequent guest on Bloomberg TV, spoke with Opalesque's Matthias Knab on October 20, 2026.
Managing risk for Monroe Trout - and discovering the "Global Relay Race"
Matthias Knab: Eric, it's been a while. It's October 2026 - what has been happening at 3D Capital Management, and how do you see the markets?
Eric Dugan: Let me start with Monroe Trout. I joined him in 1993 and ran his Asia desk and the systems traded there. Monroe is a legend in our business. His chapter in New Market Wizards is titled "The Best Return That Low Risk Can Buy," and that is exactly how he managed risk. He was essentially a systematic, short-term, one-day trend follower, and I spoke with him every night. As a manager, I made sure our traders followed the rules of his systems, traded alongside them, and brought him market observations and recommendations to improve his research, trading strategies and systems.
After Trout, I went to Willowbridge and worked alongside Phil Yang. At those two legendary billion-dollar hedge funds, I managed risk in stocks, bonds, currencies, energies and metals across Asia, Europe and the U.S.
Those years gave me a front-row view of what I call the Global Relay Race. The trading day starts in Asia, hands off to Europe, then to the U.S. Over 15 years, it became clear to me that there were statistically significant clues to the S&P 500's daily direction. And I knew the biggest problem every stock market investor has is the decline. If I could read the relay, I could build a system to defend against it. Everything I've built since comes from that education.
From proof of concept to a 15-year live record
Eric Dugan: In 2008 we put the idea to the test. We held a long E-mini S&P position and moved to cash whenever our signal flagged a decline. That long-only program finished 2008 up about 3% while the E-mini fell 39%. It was the proof of concept for everything that followed.
We registered as a CTA in 2010, and our industry contacts all said the same thing: after a 50% drop in the financial crisis, nobody wanted long S&P exposure - they only wanted short. So in 2011 we launched an intraday short-only S&P 500 program, and we have traded it live ever since. That is the short alpha engine inside 3D Hedged Equity. It has run through the longest bull market in history and some of the most and least volatile periods the S&P 500 has ever seen. Through all of it, one thing has never changed: the enemy is the S&P 500 drawdown, and our mission is to solve the problem of S&P declines.
Packaging the hedge with the index
Eric Dugan: We've had to evolve, because most investors don't think they need defense until it's too late. So today 3D Hedged Equity holds the S&P 500 through E-mini futures and pairs it with the short alpha engine we've run since 2011. Passive plus active - one plus one equals eleven.
Every day we are defending our clients' portfolios. We aren't always hedged, but we're always ready. Before the open on Friday, October 16, our signals flagged the S&P as vulnerable. The market dropped, our hedge engaged, and when it was no longer needed the hedge came off and clients were fully invested again. That's what "3D" stands for: daily dynamic defense - designed to defend the declines and stand aside for the rallies.
How clients work with 3D Capital
Matthias Knab: What does the process look like for a client? Do they show you their long exposure and ask you to offset part of it?
Eric Dugan: We start with two questions: Are you long the S&P? And are you a buy-and-hold investor, in it for the long term? If you own a mutual fund, an ETF or the big tech names, your risk is very likely correlated with the S&P 500. So we manage part of that passive exposure and combine it with our short alpha engine. Today that's offered as a separately managed account, 3D Hedged Equity, though we can tailor it to what a client needs.
Futures are capital efficient and carry tax advantages. The client picks their own broker, and the money stays in their own account - 3D Capital never has access to client funds. They see every position in their account, every day. There is daily liquidity and no lockups, and they can dial exposure up or down, or stop, whenever they want. We aim to be as transparent and liquid as possible, and the investor has total control.
Matthias Knab: Which types of investors do you work with?
Eric Dugan: Family offices, high net worth individuals and institutions - and increasingly RIAs, who are responsible for managing their clients' risk and are looking for stock market defense. For hedge funds and family offices, we also provide our signals on a consulting basis, as a complement to their existing programs. Our programs are available to qualified eligible persons (QEPs).
"The only way to cancel an S&P loss is with an S&P gain"
Eric Dugan: Diversification is not protection. Gold, bonds and Bitcoin are good diversifiers, but they won't cancel an S&P loss - and they can add risk. On June 5, the worst day of 2026, the S&P fell 2.6%, gold 3.1%, Bitcoin 3.0% and bonds 0.8%. The same was true in 2018, the S&P's first down year in a decade, and again in 2022. When the market went down, so did the "protection." And even when they go up, you still take the S&P loss - while taking on more risk. The very market that creates the problem is also the only solution. That's why we defend the index with the index.
The only way to cancel an S&P loss is with an S&P gain. Institutions generally understand this; with family offices, RIAs and high net worth investors, there's more education to do. Most people are taught to protect a portfolio by owning something else. We look at the market from a different perspective - we use the S&P itself to defend against S&P declines. It's unconventional, and I sometimes joke that 3D should have stood for different, different, different.
Shorting the S&P 500 is hard to do. Many people don't believe it can be done successfully over time, or that a hedge can work without being a drag on returns. We understand the skepticism. That's why we'd rather show people the record than tell them about it. We use E-mini futures, so there's no borrowing of shares involved. We believe what makes us different, and why we've had success, is that we do it one day at a time. The program is systematic and rules-based, built on decades of data in the S&P 500 and global markets, and designed to be dynamic and nimble to the message of the market. Going back to Monroe Trout and Phil Yang, I've been managing risk this way for more than 30 years.
Just yesterday an RIA reached out because their clients are worried about the equity market - rightly so. The KOSPI has entered bear market territory, and Asia and Europe are both showing weakness. To be clear, we're rooting for the S&P. We want it to go higher. We simply prepare our clients for when it doesn't.
Which bucket?
Matthias Knab: If investors ask how big you are and which bucket to put you in, what do you tell them?
Eric Dugan: Our last client asked exactly that. We fit in alternatives, long/short and defensive equity, but since the exposure is the S&P 500, we'd call ourselves primarily a defensive equity manager. Not traditional, not alternative - both. We're an alternative method, not an alternative asset. We're not at capacity - conservatively, our capacity is about a billion dollars. We provide our signals to family offices and institutions on a consulting basis, and we manage money for clients.
"A bear needs the market to fall. We need it to compound."
- Eric Dugan, 3D Capital Management
Getting investors over the fence
Matthias Knab: When you talk with potential clients, what else do you tell them?
Eric Dugan: I've always had a defensive mindset. In soccer I was the stopper - find the player doing the damage and stop him. That's 3D's mission. The challenge is that in a rising market, people don't think they need defense. We recently presented our 15-year history of profitably shorting the historic bull market, and someone asked why anyone needs defense when the market always goes up. My first thought was: maybe we're at the top.
Packaging the hedge with the S&P has made the conversation much easier. Investors aren't going to sell their S&P - they buy and hold and pass it down for generations. So instead of asking them to buy a hedge on its own, we put our 15-year live short-only record to work inside their core equity exposure. Compare 3D Hedged Equity with a JP Morgan hedged equity product, or with peers taking very different approaches, and you can see the value.
You show them what the program is designed to do. On June 5, the S&P 500's worst day of 2026, the index fell 2.6% and 3D Hedged Equity gained 5.49%. On March 31, the S&P's best day of the year, 3D Hedged Equity gained 2.65%. That's the design: defend the declines and stand aside for the rallies, so clients participate on the upside. On October 16, the market fell about 1% and 3D Hedged Equity was profitable.
It doesn't always work. But doing anything other than shorting means tolerating or accepting a loss, and that's not something we accept. Unless you can short the S&P when it declines, you will never solve the problem of S&P declines. That's why we defend, and stand ready to defend client risk, every day. Smaller drawdowns matter because you compound from a larger number. Lose less on the way down, and you can make more on the way up.
Everyone talks about staying invested so you don't miss the best days. Far fewer people talk about what happens when you miss the worst days - or lose less, or even make money, on them. That's where compounding really does its work. We're happy to share the data, day by day, including how our short alpha engine compares with gold and bonds across the S&P 500's 20 largest drawdowns.
The warning signs are there
Matthias Knab: Are people getting nervous? You mentioned Korea - what about the S&P 500 and the big IPOs like Anthropic or SpaceX? Or are investors relaxed?
Eric Dugan: We're definitely getting more inquiries. I joke that if you aren't nervous, your head must be in the sand. Big IPOs like Anthropic and SpaceX can be a sign of how much optimism is priced in - one more thing we're watching. Markets will go up and down long after we're gone. The problem is the bear market - and really the down days, because days become weeks, months, quarters and years.
We also watch social media. When RIAs who are always long and strong start posting that things look stretched - rates, geopolitics, Asia, market concentration - and say they wouldn't be surprised by a 10% correction, our radar goes up. Asia and Europe are sending the signal, but the S&P is on its own planet - near all-time highs, with the Buffett indicator, the market's value relative to GDP, at or near the highest level on record. If it keeps moving higher, fantastic. If it doesn't, and we get a day like last Friday, we're prepared. This isn't doom and gloom - we're concerned, not bearish. We're fans of the S&P 500; we believe it's the greatest wealth engine ever built. We're not betting against it. We exist to make it better, by solving the problem of guaranteed losses every time the S&P declines. A bear needs the market to fall. We need it to compound.
Matthias Knab: What are you seeing today?
Eric Dugan: Today, October 20, Asia and Europe are down, the U.S. is about unchanged and the Nasdaq is slightly lower. The question in the relay race is whether the baton passes from Asia to Europe to the U.S. If it does today, we're prepared. If not, earnings come tomorrow, and we'll be prepared then too.
We do this every single day. Few people are willing to do that. There's no glamour - it's like being a lineman in the trenches. You show up, grind and stay ready. We take great pride in our track record and in the discipline behind it. We've been told that 15 consecutive years of live short-only trading, and more than 4,700 trading days since 2008 without missing one, is something few people have seen. Our clients already participate when the market goes up. Our job is to compete for them every day it goes down - to help them lose less, or make money.
"S and F": shorting and futures
Matthias Knab: What else is important about your approach?
Eric Dugan: When I speak with college students, I ask how they would protect a portfolio. I hear options, gold, bonds, Bitcoin. Options have their place, but the cost adds up, and it's not what we do. I rarely hear the real solution: shorting and futures. I tell them "S" and "F" are the two dirty words that can best defend a portfolio. Shorting gets a bad rap from high-profile episodes like GameStop, which is unfortunate.
Futures are extremely capital efficient, but margin and leverage are involved. They are a tool, not a toy - like a scalpel in a surgeon's hand. Used with discipline, the way Monroe Trout managed risk, they work. And the E-mini S&P 500 is one of the most liquid instruments in the world for shorting the S&P. That's why we are all S&P, all the time.
Where the research is taking us
Eric Dugan: What excites us most is where the research is going. For most of 3D's history, the edge came from our own market observations. Today we have established quantitative research support, and AI has also been a great addition.
Markets take the escalator up and the elevator down. Our rules are designed to identify sharp reversals against the longer-term trend, which makes them different from traditional trend following. They are systematic, data-driven, symmetrical and scalable. The same discipline that identifies weakness in the S&P 500 can also be used to identify strength, and that work has extended our rules to the long side of the S&P - long and short strategies designed to generate alpha on both sides, not just to hedge. The same approach is designed to extend beyond the S&P, into global markets across asset classes and time zones, the way I traded at Trout and Willowbridge.
For CTAs, hedge funds and absolute-return investors, we see this as a complement to what they already do, not a replacement. We're excited about where it's going, and we'd welcome the conversation.
For anyone who wants to learn more about how we manage risk, there are my Bloomberg TV appearances, our LinkedIn and our website, 3dcapitalmanagement.com. Many of the investors who could benefit most from S&P defense have never heard of an approach like ours, so we encourage people to reach out to us directly - investors, family offices and advisors alike - and see the data for themselves. You can reach us at eric@3dcapitalmanagement.com.
Thank you, Matthias. Your work, diligence and professionalism have made a real contribution to our industry, and your reputation precedes you in the best way. It's always a pleasure.
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