It seems Michael Burry's Scion Asset Management sold almost all of its U.S. common stock investments in the second quarter of 2022. According to the firm's latest 13F report, only one holding remained in the portfolio at the end of June, and that was a new stake in GEO Group (GEO, Financial). At the end of the first quarter, according to the fund's 13F for that period, there were previously 11 positions in the portfolio, including Bristol-Myers Squibb Co (BMY, Financial) and Booking Holdings Inc. (BKNG, Financial).
A value fund manager
Burry shot to fame after the financial crisis, when it emerged that he had been one of the first investment managers to realize the U.S. housing bubble was unsustainable and bet against it accordingly. His actions were later detailed in the film "The Big Short."
The investment manager's track record is actually far longer than just pre-crisis. He has been investing since the turn of the millennium, specializing in finding undervalued securities, putting in the leg work to distinguish when a company is really undervalued and where the value is as other investors look over the opportunity.
This skill really helps the fund manager stand out as an investor. It's also the reason why I like to keep an eye on his portfolio movements.
The fund manager occasionally publishes some of his thoughts via Twitter (TWTR, Financial), although they tend to be cryptic tweets without detailed analysis explaining his way of thinking. Still, they do provide some insight into his thought process.
At the beginning of August, the fund manager declared on Twitter that "the silliness is back" in the market, the same strain of silliness that took hold in 2000 and 2008. He has also warned that unconstrained consumer spending heralds trouble for the U.S. economy, as other economic indicators are already flashing red.
If Burry truly believes that the global economy is on the verge of another collapse and the market is responding in the same vein as it did before the crash in 2008, then the recent moves in his portfolio make a lot of sense.
A big drawback
However, I wouldn't follow Burry's actions blindly just because of his past success in calling market crashes. One of the big drawbacks of 13F reports is the fact that they only detail holdings of U.S. equity securities. They don't tell us anything about international equity positions or other assets, such as credit default swaps, which the fund manager owned in the run-up to the financial crisis. It's possible that he could have sold all of his securities to buy other assets as a way to bet on the upcoming economic collapse. Alternatively, he could have moved his assets to other markets, markets he may believe are better positioned to deal with economic uncertainty. We have no way of knowing unless he breaks his silence on the topic.
Another factor to consider is that Burry's portfolio generally has quite a high turnover rate. In the third and fourth quarters of 2021, portfolio turnover was more than 100%. This makes it quite difficult to understand why he was buying equities. It seems to suggest the fund manager likes to trade short-term market movements rather than buying and holding over the long run.
As noted above, the one position he has left in the portfolio is GEO Group. This corporation invests in private prisons and mental health facilities, two relatively defensive markets as they tend to be funded by government spending. The shares have been punished over the past five years, losing around three-quarters of their value, but it looks as if Burry believes there is hidden value here. Contracts in these sectors tend to be relatively predictable and government-backed, locking in cash flows for many years. Not many businesses have this kind of revenue visibility, which might give the stock an edge in an uncertain economic environment.
