- The investor Michael Burry rose to fame by shorting mortgage securities ahead of the 2008 housing meltdown.
- His wager was heavily featured in Michael Lewis’ bestselling book “The Big Short,” and Christian Bale portrayed Burry in the 2015 film adaptation.
- In a recent email to Bloomberg, Burry drew parallels between the proliferation of index funds and the rise of collateralized debt obligations he shorted ahead of the financial crisis.
- Burry has spoken out against passive investing strategies before, saying they represent a swelling bubble.
- Read more on Markets Insider.
To famed investor Michael Burry, index funds look eerily like collateralized debt obligations did ahead of the 2008 financial crisis.
Burry laid out the parallel in an email to Bloomberg on Tuesday. He said the massive inflows to index funds are distorting the prices of the stock and bond securities they’re designed to track, much like how CDO buying stretched subprime mortgages.
When the flows inevitably reverse at some point, “it will be ugly when they do,” he told Bloomberg.
Burry rose to fame after betting against CDOs ahead of the 2008 financial crisis. The unconventional trade netted Burry millions and was documented in Michael Lewis’ bestselling novel “The Big Short.” The book was adapted into a 2015 film of the same name, with Christian Bale playing Burry.
He’s kept a low profile since the movie, but still oversees $US340 million in assets at Scion Asset Management in Cupertino, California.
“Like most bubbles, the longer it goes on, the worse the crash will be,” Burry said in the email to Bloomberg.
Burry has been especially vocal about his distaste for passive investing in recent days. Just last week, he called it a bubble that ignores small-cap stocks. That has, in turn, piqued his interest in small caps as a ripe investing opportunity.
Though Burry’s fame originated from a short trade, he told Bloomberg he was more interested in “long-oriented investing in undervalued and overlooked situations.” His firm recently revealed large active investments in three small-cap companies in the US and South Korea.
In the end, Burry is just the latest in a string of financial leaders who have pointed out flaws in passive investing. That list includes Jack Bogle, the late founder and chief executive of the Vanguard group credited with creating the first index fund in 1987.
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