Dr. Michael Burry, whose spellbinding all-in bet against the subprime mortgage market reaped a fortune and was made famous in the book and film The Big Short, released his new firm’s first public portfolio in the fourth quarter and showed some unexpected positions.
Burry retired his fund, Scion Capital, in 2008 after his early recognition and short of the subprime lending market that virtually nobody had understood for years proved correct. From 2000 through the crash of 2008, Burry earned his Scion investors 489.34% in returns, according to Vanity Fair. In Scion’s last quarterly letter to investors, Burry explained how he spotted the trouble that led to the financial crisis.
“My father, a mechanical engineer, used to dismiss random chance,” Burry said. “The harder you work, the luckier you get, he’d say. I am convinced there is hardly a better rule by which to live.”
Scion Asset Management, Burry’s new fund, opened in 2013 in Cupertino, California. Its COO is Zaeed Kalsheker, who worked for Burry’s previous fund. By Dec. 31, its assets under management presumably reached $100 million, the regulatory threshold for investment firms to disclose their long holdings publicly.
Burry’s fourth-quarter long portfolio for Scion Asset Management listed 13 stocks with a total value of $74 million. Roughly eight years after the sector almost fell apart in the financial crisis, Burry has invested 32.4% of the portfolio in financial services stocks as his largest weighted sector. The next in size are technology at 28.9% and health care at 23.7%.
Burry has five financial positions: ACE Ltd. (ACE, Financial), Citigroup Inc. (C, Financial), Bank of America (BAC, Financial), Bank of New York Mellon Corp. (BK, Financial) and PNC Financial Services Group Inc. (PNC, Financial).
A value investor, Burry said in 2008 that financial institutions were difficult to value due primarily to share dilution accompanying emergency capital injections and continual write-downs related to risky off-balance sheet investments. The quality of financial statements, he said, “was “every bit as inscrutable as those from Enron circa 2001,” and less leverage and lower returns would persist over the long term.
“Any investment thesis in these companies must therefore be based upon modest returns on a substantially reduced equity base. I imagine the shares of these companies, in most cases, will become very boring before they become attractive again,” he said.
Banks have looked more attractive to value investors in the first quarter as many appear inexpensive with low P/B ratios. In particular, Bank of America trades below book value with a ratio of 0.6 and Citigroup with 0.61.
As his top position, Burry has a REIT, NexPoint Residential Trust (NXRT, Financial), followed by Apple Inc. (AAPL, Financial). He also has one energy bet, CNX Coal Resources LP (CNXC, Financial).
Below is a summary of Burry’s largest financial services picks.
Burry holds 50,00 shares of ACE Ltd., at 7.89% of his portfolio. Year to date its price declined 6.4%.
Burry has 100,000 shares of Citigroup Inc., at 6.99% of his portfolio. The price declined by 19% year to date.
Citigroup Inc. was incorporated in 1988 under the laws of the State of Delaware. Citigroup Inc. has a market cap of $123.47 billion; its shares were traded around $41.88 with a P/E ratio of 7.76 and P/S ratio of 1.65. The trailing 12-month dividend yield of Citigroup Inc. stocks is 0.48%. The forward dividend yield of Citigroup Inc stocks is 0.48%. Citigroup Inc. had an annual average earnings growth of 11.2% over the past five years.
Bank of America (BAC, Financial)
Burry holds 300,000 shares of Bank of America, at 6.82% of his portfolio. Its price has declined roughly 20% year to date.
Bank of America Corp. was incorporated on July 31, 1998, in Delaware. Bank of America Corp. has a market cap of $139.19 billion; its shares were traded around $13.48 with a P/E ratio of 9.85 and P/S ratio of 1.83. The trailing 12-month dividend yield of Bank of America Corporation stocks is 1.50%. The forward dividend yield of Bank of America Corporation stocks is 1.49%. Bank of America Corporation had an annual average earnings growth of 52.3% over the past 5 years.
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