Michael Burry shot to fame and fortune by betting against mortgage securities before the 2008 crisis, a trade immortalized in “The Big Short.”
Now, Burry sees another contrarian opportunity emerging from what he calls the “bubble” in passive investment. As money pours into exchange-traded funds and other index-tracking products that skew toward big companies, Burry says smaller value stocks are being unduly neglected around the world.
In the past three weeks, his Scion Asset Management has disclosed major stakes in at least four small-cap companies in the U.S. and South Korea, taking an activist approach at three of them.
“The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally,” Burry, whose Cupertino, California-based firm oversees about $343 million, wrote in an emailed response to questions from Bloomberg News.
Active money managers have bled assets in recent years as investors rebelled against high fees and disappointing returns — a trend that prompted Moody’s Investors Service to predict that index funds will overtake active managementin the U.S. by 2021. The shift has coincided with a multiyear stretch of underperformance by value stocks and, more recently, by small-caps.“There is all this opportunity, but so few active managers looking to take advantage,” wrote Burry, who was played by Christian Bale in the film version of Michael Lewis’s book on the collapse of the U.S. housing bubble and ensuing financial crisis.
While Burry is best known for his bearish wagers, he said his passion is “long-oriented investing in undervalued and overlooked situations.” He said he’s turning to activism in some cases because there’s not a “critical mass of smaller value-seeking active managers like me” and to help companies make themselves more attractive to investors.