Michael Burry (Trades, Portfolio), the famed investor who gained prominence for predicting the 2008 financial crisis, is making waves once more with his second-quarter equity portfolio.
His firm, Scion Asset Management, made bold moves across various sectors, including technology, health care, entertainment and more, giving a critical glimpse into his strategies and outlook.
Unsurprisingly, a Securities and Exchange Commission filing on Monday revealed that Burry's firm had new bets against the S&P 500 ETF Trust ETF (SPY, Financial) and Invesco QQQ Trust (QQQ, Financial) at the end of June.
Top new positions and areas of interest
Burry's new positions reflect a mix of companies across different sectors, including technology, health care, energy, media and more. He entered positions in or increased his holdings of companies like Expedia Group Inc. (EXPE, Financial), Charter Communications Inc. (CHTR, Financial), CVS Health Corp. (CVS, Financial), MGM Resorts International (MGM, Financial) and others.
These investments signal his confidence in a post-pandemic economic recovery and a potential increase in consumer spending.
For instance, CVS Health (CVS, Financial), at around 9 times earnings, is in an extreme bargain zone and analysts do not expect any growth. However, there is a ton of cash flow, so if circumstances turn out to be better than anticipated, the market may partially reverse its enormous discount to the large-cap universe, which makes this a reasonable and well-suited bet for Burry's portfolio.
Next, Expedia's (EXPE, Financial) financial metrics appear strong, except for losing money in 2020, and the price-earnings ratio is only 12. According to analysts, the company's margins could expand somewhat, putting the stock at about 9.50 times projected earnings for 2024, making it a wise move by Burry.
Similarly, Charter Communications (CHTR, Financial), following the significant sell-off starting in 2021, has value potential at just 13 times earnings. The company can easily meet its profitability targets and get a boost from the market.
Contrary to the exit of Chinese stocks, MGM Resorts International (MGM, Financial) still needs to be recession-proof and a China play. The fact that Burry appears to have sold the balance of his Chinese holdings is also noteworthy but inconsistent with his actions.
Nevertheless, the guru's portfolio adjustments reveal a strategy encompassing diversification across sectors, potentially aimed at spreading risk and capturing opportunities in multiple areas. Adding positions in the health care, energy and e-commerce sectors suggests a dynamic approach to adapting the portfolio to changing market conditions.
Source: Author - SEC Filings
Focus on China and regulatory concerns
Burry's divestment of JD.com Inc. (JD, Financial) and Alibaba Group Holding Ltd. (BABA, Financial), two major tech giants, hint at his cautious approach toward investing in Chinese companies due to regulatory uncertainties and geopolitical tensions.
These exits suggest concerns about the regulatory environment impacting businesses in China and prove the speculative nature of these transactions undertaken in the first quarter.
The lack of direct additions to Chinese companies could indicate his reluctance to invest heavily in Chinese markets. Therefore, his preference for domestic and Western companies might stem from a desire for more predictable regulatory landscapes and economic conditions.
Big short 2.0
During the quarter, Scion purchased put options worth approximately $1.6 billion against two prominent exchange-traded funds, the S&P 500 ETF TRUST ETF (SPY, Financial), which tracks the S&P 500, and the Invesco QQQ Trust (QQQ, Financial), which tracks the Nasdaq 100.
These put options highlight Burry's pessimistic outlook on these indexes as they offer the right to sell the underlying assets at a predetermined price, benefiting it if the assets' value decreases.
Comparison with 2008 financial crisis
Comparing this move to Burry's massive short position during the 2008 financial crisis provides insight into his investment strategy's evolution. In the lead-up to the 2008 crisis, Burry famously predicted the subprime mortgage market's collapse and executed a large short position against mortgage-backed securities. His foresight led to substantial gains for his fund and earned him recognition.
While both instances involve Burry's pessimistic views on the market, key differences exist. In 2008, his short position targeted specific assets (mortgage-backed securities) at the center of the crisis. In contrast, his short positions target broad market indexes, reflecting a more comprehensive bet against overall market performance. This indicates his concern about broader economic conditions rather than a specific sector or asset class.
The guru's short makes sense since the S&P 500 typically gains roughly 13% during late-cycle rallies after the Federal Reserve pauses and credit tightens before falling by 35% to its ultimate lows. However, it is essential to keep in mind that following 13-F filings has limitations since they are 45 days late and incorporate past decisions that might no longer hold true.
Takeaway
In conclusion, Burry's second-quarter portfolio offer a multi-dimensional perspective with increased stakes in the technology, communication and health care sectors. Concurrently, his strategic exits from certain tech giants and prescient bearish outlook on major indexes underscore a calculated caution amidst economic uncertainties.
These rapid shifts reflect Burry's shrewd adaptation to changing market currents. Notably, the purchase of substantial put options manifests a bold "Big Short 2.0," echoing his past triumphs, but on a greater scale, indicating his conviction in a sweeping market recalibration.
