Bloomberg
Michael Burry, the doctor-turned-investor profiled in Michael Lewis’ book “The Big Short” for his call on the trouble lurking in mortgage-backed securities in the 2008 financial crisis, has a new big idea.
“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 told Bloomberg News.
Many market observers have for years expressed concern about the rush of money into passively-managed funds, though few have gone so far as to call it a “bubble.” Academic research published in June shows that three index fund managers together manage more than $1.8 trillion, and that they could control as much as one-third of all voting shares of S&P 500 companies in the coming years.
Critics worry that such concentration of money in passive investments could amplify any market sell-off, but ETF managers point to big declines in December as proof that ETFs can withstand market shocks.
Related: Investors got spooked by the Christmas market massacre, new fund flow data shows
Burry’s firm, Scion Asset Management, has disclosed big stakes in four small-cap companies, including GameStop Corp. GME, +7.03% , and Tailored Brands Inc. TLRD, +7.73% Burry has asked management of both companies to buy back their shares, and told Bloomberg that he is taking an activist approach because he believes there needs to be a “critical mass of smaller-value seeking active managers like me.”
See: All that glitters might be just what your portfolio needs now
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