Industry Updates

The Big Short’s Michael Burry warns of ‘bubble’ in passive investing

Tom Eckett

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Michael Burry, the investor who shot to fame following Michael Lewis’s book ‘The Big Short’ for betting against mortgage securities in the lead-up to the Global Financial Crisis, has warned there is a “bubble” in passive investing.

According to Bloomberg, Burry stressed an opportunity has arisen from passive investments pouring money into large cap stocks.

The famed investor went onto say this opportunity was in smaller cap value stocks which have been ignored by the huge inflows seen into passive vehicles over the past decade.

The dramatic rise of ETFs has been well documented. Since 2008, global ETF assets have grown from $716m to $5.6trn, as at the end of July, according to data from ETFGI.

ETFs have been no short of critics during this time with Alliance Bernstein analyst Inigo Fraser-Jenkins in 2016 describing ETFs as “worse than Marxism”, given that communists attempted to allocate capital efficiently.

Over the past few weeks, his firm, Scion Asset Management, has taken positions in over four small-cap companies in the US and South Korea.

ETF Insight: The rise of ETFs has an unintended consequence

Burry told Bloomberg: “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.

“There is all this opportunity, but so few active managers looking to take advantage.”


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