Michael Perry snapped a bunch of energy and shipping stocks in the second quarter.
One analyst said the “Big Short” investor was likely to be attracted to its cheapness and upside potential.
The analyst noted that Perry also made a “very large” leveraged bet against the S&P 500 and the Nasdaq 100.
Michael Berry didn’t just do that bet against the S&P 500 and Nasdaq-100 in the most recent quarter, also load energy and charge stock. One prominent analyst says these purchases make perfect sense for the investor with “The Big Short” fame.
Burry’s Scion Asset Management has bought shares in Vital Energy, Precision Drilling, Costamare, Safe Bulkers and six other companies in the oil, gas and shipping industries, Securities and Exchange Commission filing revealed this week. The 10 positions, of 33 total holdings, were worth a total of $29 million at the end of June — more than a quarter of Scion’s total portfolio value, excluding options.
The fund manager’s purchases were likely contrarian and asymmetric bets, Jerry Fowler, head of European equity and global derivatives strategy at UBS told Insider.
The energy and shipping sectors are home to “very cheap companies trading at very low profits,” he said, adding that Perry may have been “looking for things where he can make five times more than he can lose.”
Energy companies were in a bad spot a few months ago, after the steady decline in oil prices. Fowler said Perry may have expected a rebound as several tailwinds emerged in June, including OPEC production cuts, a surprisingly resilient global economy, and the completion of oil sales from the US Strategic Petroleum Reserve.
“We’re not as smart as Michael Pare,” Fowler joked, but even his team expected oil prices to rise and energy stocks to rise against this background.
As for shipping stocks, Barry may have piled on them because they were so cheap. Earnings in the sector have come under pressure, as the pandemic boom in commodity buying has waned.
Battered stocks could swing rapidly higher, Fowler said, as “any hint of bullish momentum” could cause analysts to revise their earnings forecasts, and the market to reprice shares to reflect improved growth prospects.
Burry’s purchases of energy and shipping stocks may indicate that he is bullish on international trade and the global recovery. However, Fowler cautioned against attributing that view to Burry given the array of economic problems around the world, and the fact that Scion had index hedges with a notional value of $1.6 billion on June 30.
“This is a large position even for a large fund,” he said, adding that it was a particularly big bet in Scion’s $111 million portfolio. Even if Barry pays a small portion of the $1.6 billion for the hedge, Fowler noted, “the exposure he’s using shows a lot of leverage.”
Burry’s energy and shipping bets may not illuminate his current outlook Stores or the Economy, but they speak to his distinctive investment style. Specifically, making contrasting and unequal bets – such as the oNortheast against the housing bubble that made him a household name – on unfashionable, undervalued assets.
Read the original article at Business interested