Michael Burry’s investment firm Scion Asset Management divested itself of numerous stocks in the second quarter – and built up huge short positions on the S&P 500 and Nasdaq-100.
Just months after joining the company, value investor Michael Burry, widely known for the film “The Big Short,” sold his investment in Alibaba and JD.com. Scion Asset Management, of which Burry is the founder and CEO, has been developing short positions on the S&P 500 and Nasdaq-100 at the same time.
The so-called 13F filings to the U.S. Securities and Exchange Commission (SEC), which major investors with assets under management of more than $100 million are required to report on a regular basis and no later than 45 days after the end of the quarter, contain information regarding this.
Based on the “SPDR S&P 500 ETF” closing price on June 30, the notional value of the short position on the S&P 500 was $886,560,000. The “Invesco QQQ Trust Series 1” Nasdaq 100 short position had a notional value of $738,840,000. According to a 13F filing, the $1.6 billion in put options made up more than 90% of Scion Asset Management’s portfolio.
The magnitude of the actual investment and the premium paid would, however, probably be significantly less depending on the strike prices and months of each option traded. The anticipated price of these puts, which is far lower than the previously quoted $1.6 billion, is between $20 million and $50 million.
However, given the indicated size of the short position, it is more plausible that these holdings represent an outright wager on the stock market’s decline than they do hedging of other bets. Burry, who gained notoriety by foreseeing the 2008 housing meltdown, has a sizable social media following thanks to his forecasts of impending dangers. He stated that the United States was already in a recession and forecasted another increase in inflation in January.
Equity position sales as a swift turnaround
When you consider that at the end of March, Scion’s two biggest stock holdings, Alibaba and JD.com, represented 20% of the company’s portfolio, the selling of those two companies is likewise a startling turnabout. Burry sold its stakes in 15 businesses during the second quarter, including banks it had acquired during the previous quarter when the financial industry was shaken by the failure of major lending institutions. They include PacWest Bancorp, which Banc of California is buying, and First Republic Bank, which JPMorgan helped save.
As of June 30, Expedia Group was Scion’s largest holding. Midway through the year, the hedge fund purchased 100,000 shares for $10.9 million. As part of a significant portfolio restructuring last quarter, the fund added 25 new positions, including Charter Communications and CVS Health. At the end of June, Burry’s 15 largest assets were all brand-new investments.