Michael Burry's Scion Asset Management made some substantial changes to its portfolio in the second quarter of 2021. According to the firm's 13F report, Burry and the team added five new positions to the portfolio, bulked up on six and eliminated 14.
What's quite interesting about Scion's latest 13F, which covers the three months to the end of June, is that the firm sold virtually all of the holdings that featured its portfolio at the end of the first quarter apart from six. Based on my (admittedly uneducated) guess, it seems as if the hedge fund may have cleared out its portfolio ahead of a change of strategy.
However, as 13F reports only show us which equities the firm owned at one point in time and do not reveal the prices it bought and sold the securities, it is impossible to tell if Burry sold the securities to realize significant profits. The reports also do not tell us why Burry bought or sold the stocks in the first place. He might have been trading in and out of these holdings, and they only appeared on the first quarter filing because he happened to hold them at the time and sold shortly after. With only limited information, it is impossible to tell - we can only guess.
Still, Scion's 13F does provide some insight into where Burry appears to see value in the market at the moment, although this information should only be used as a starting point for further research.
Burry's new investments
At the top of the new buy pile, now accounting for 1.19% of the hedge fund's reported assets under management, sits Discovery Communications (DISCK, Financial). This was a new addition to the portfolio in the three months to the end of June. It is worth $25 million, making it the largest holding in the $2.08 billion equity portfolio managed by the storied value investor when options are not considered.
A quick glance at this broadcast and production company shows it is a free cash flow champion. Last year, the group reported free cash flow of $2.3 billion. Evaluated against its market capitalization of $14 billion, this suggests a free cash flow ratio of 16%.
The stock is currently changing hands at around $27, but as recently as the end of March, it was selling for approximately $67. The stock collapsed after the hedge fund Archegos Capital Management blew up after taking on too much leverage. As its brokers dumped stock on the market, other investors fled from the most affected equities.
Based on his recent activity, it would appear Burry has seen an opportunity to take advantage of Archegos's mistake.
Burry also bought Ovintiv Inc. (OVV, Financial) and GEO Group Inc. (GEO, Financial) in the second quarter. These are now the second and third-largest positions in the portfolio, respectively, accounting for 0.91% and 0.85% of assets.
Buying into shipping
I noted above that Burry sold most of the holdings he owned at the end of the first quarter in the three months to the end of June. But he didn't sell all of them. Regarding the six he held on to, he was buying more shares in the second quarter.
Two of these were shipping companies, Golden Ocean Group (GOGL, Financial) and Scorpio Tankers Inc. (STNG, Financial). Burry increased his ownership of these two stocks by 32% and 215%. Scorpio now makes up 0.64% of Scion's equity portfolio.
This appears to be a bet on rising shipping rates around the world. The disruption caused by the pandemic has caused backlogs at ports around the world. This has sent shipping rates skyrocketing.
Golden Ocean has been a significant beneficiary. Its stock has more than doubled since the beginning of the year. At the end of May, it announced net income of just under $24 million for the first quarter of 2021, the best result in its history. Burry seems to be betting that this trend will continue.
