Michael Burry’s feats during the financial crisis became widely known through their depiction in the 2010 book and 2015 movie “The Big Short.” His prediction of the mortgage industry meltdown and trades in credit default swaps earned his investors millions until he closed his hedge fund in 2008.
In 2013, Burry reopened his hedge fund. Based in Cupertino, California, Scion Asset Management had assets under management around $263.23 million as of March 26. The latest quarterly filing, reporting holdings as of March 31, valued the long U.S.-listed equity portfolio at $98 million. The portfolio also showed strong performance year to date, with nine of the largest positions posting gains, including Five Point Holdings LLC (FPH, Financial), Alphabet Inc. (GOOGL, Financial) and Altaba Inc. (AABA, Financial), according to GuruFocus data.
In interviews, Burry has described his investing style as heavily reliant on, but not identical to, value investing as described by Ben Graham in his book, “Security Analysis.” That does not mean that Burry has not adapted to the changing economic landscape over the years. He called his strategies and techniques “continually evolving” in his firm’s March 20 brochure filing with the SEC.
“Scion understands that profitable strategies in the first half of the 2000s were not the same strategies that were profitable in the second half of that decade,” Scion wrote. “And Scion understands that this is true for most decades in modern times.”
Fundamental research remains critical at the firm, but will “technical, macroeconomic, and other tactical approaches to the ever-changing securities marketplace,” according to the document. “Investment in individual equities based on Scion’s fundamental, value-oriented analysis will often be a principal emphasis,” it said.
More documents related to the firm reveal that it opened a fund focused on Asia in 2018. Scion Asia LP had raised $37.09 million s of March 13 that year, and had raised $198.7 million as of March 13, 2019. The fund is his fifth at Scion, which also oversees a Value Fund and Master Fund, among others.
It is not his first time investing in Asia – he closed down Asia-focused funds in 2008 that had about $200 million in assets and returned between 80% and 116% since he founded them in 2005, The Wall Street Journal reported. Burry closed the funds to shift his attention to “dramatically undervalued distressed assets and out-of-favor businesses” amid the financial turmoil of the burst global credit bubble, he said.
Burry has not yet filed the holdings of the new Asia fund with the SEC, but he disclosed some information about where is investing in fund documents. Geographically, he identified Japan, and “to a lesser extent” South Korea and Hong Kong as “focus countries.”
“In Japan, the Asia Fund intends to invest primarily in small-and micro-cap companies,” Scion wrote. “It may also invest in securities of companies that are traded in, or whose businesses emphasize, other countries, primarily in Asia.”
When discussing the risks specific to the countries, the firm said the value of Japanese equities depended strongly on macro political and economic developments, including the outcome of Prime Minister Shinzo Abe’s “Abenomics.”
“Japan’s economy faces several distinguishing issues, including the aging and decline of its population, shrinking consumption, low economic growth, and recurrent economic deflation. To help address these issues, in 2012, the Japanese government adopted an unconventional policy known as ‘Abenomics,’ which included monetary easing, a flexible fiscal policy, and structural reforms. The success of Abenomics is essential to Japan’s economic growth, and the failure of that policy may adversely affect the value as well as the liquidity of the Fund’s investments in Japanese securities, resulting in substantial losses.”
Geopolitical forces would have the heaviest influence on investments in South Korea, Scion wrote.
“Economic and political developments of South Korea’s neighbors may have an adverse impact on the South Korean economy,” Scion wrote. “North Korea’s nuclear capabilities have caused, and may continue to cause, tensions in the Korean Peninsula, which may adversely equity valuations and general risk tolerance.”
Burry listed only one Asian stock in his first-quarter Scion Asset Management portfolio, Beijing-based JD.com Inc. (JD, Financial), which is his largest and one of his best performing. The biggest retailer in China, JD.com occupied 9.21% of Burry’s reported long equity portfolio after he started the position in the first quarter. Year to date, its share price has climbed 49.98%, second in his portfolio only to Western Digital Corp. (WDC, Financial) a smaller holding that soared 53.61% for the same period.
GuruFocus expects assets in some of Burry’s Asia fund focus countries to outperform those of the U.S. in coming years. Compared to a negative 2.3% projected annual return for the U.S., Korea is expected to return 9.2%, and Japan is projected to return 1.1%.
If assets in Burry’s Scion Asset Management portfolio remain near or above the $100 million threshold for reporting to the SEC, the investor should post his second-quarter portfolio by the deadline in mid-August.
See Michael Burry's portfolio here.
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