Michael Burry, the legendary investor who predicted the 2008 financial crisis, has once again made waves with his latest 13-F filing.
While he added to and trimmed several positions, the standout move was his new investment in Sprott Physical Gold Fund (NYSEARCA: PHYS). In this article, we'll delve into the highlights of this filing and why he chose to invest in physical gold over other forms of the precious metal.
Burry is the maverick investor who netted $700 million during the 2008 financial crisis by betting against the housing market—a feat captured in the award-winning film The Big Short—and is widely regarded as a prescient Wall Street outsider.
Since his famous bet, he has made several notable trades. He strategically invested in water assets, anticipating future scarcity, and bought into GameStop (NYSE: GME) in 2019 before it became the poster child of meme stocks. During the COVID-19 pandemic, Burry purchased put options on equity indices, anticipating market turmoil amid the global crisis.
In his latest 13-F filing (an SEC report that details large managers’ equity holdings), Burry shows a substantial new position in Sprott Physical Gold Trust, which now makes up 7% of his portfolio. This move highlights his focus on physical gold as a hedge against economic instability and inflation.
Here are some key reasons why gold is relevant for any investor's portfolio:
- Long-Term Store of Value: Gold's industrial use and limited supply make it a reliable long-term store of wealth, trusted for centuries. The metal also protects against the eroding effects of inflation.
- Fed Policy Misstep: Gold serves as a safeguard against potential Federal Reserve policy errors, especially as the Fed is under pressure to cut rates amid rising inflation and public deficits.
- Fiat Devaluation: Gold hedges against the devaluation of the US dollar and fiat currencies in general, offering stability when confidence in traditional money wanes. The rise of Bitcoin also reflects this trend.
So…gold makes sense. But why physical gold?
Investors have multiple ways to gain exposure to gold, including ETFs, gold mining stocks, and futures. There are a few reasons why he chose the Sprott Trust specifically. Let’s find out why.
1. Direct Exposure
The Sprott Physical Gold Trust offers direct exposure to gold bullion, providing a way to invest in gold without the operational and management risks associated with mining companies. Investors purchase real gold stored in secure vaults, which is more stable and less volatile than mining stocks.
2. Reduced Operational and Management Risks
Gold mining companies face various operational risks, including high fixed costs and regulatory issues, particularly as many gold mines are in politically volatile regions. Investing in PHYS eliminates these risks, as it purely tracks the price of gold without the added complexities of mining operations.
3. Redemption Feature
This is the key to Burry’s decision. Subject to minimum quantity requirements, PHYS allows investors to redeem their units for gold bullion, a unique feature not offered by most gold ETFs.
A doomsday investor like Burry wants the ability to retrieve gold if markets are going through an extreme crisis. In a scenario like that, a regular ETF investor might face a situation in which the ETF issuers are in financial trouble themselves and may not fulfill their obligations. The Sprott redemption feature eliminates that risk for Burry and other investors.
Burry made other significant changes to his portfolio in the first quarter of 2024. He bolstered his stakes in Chinese tech stocks JD.com (NASDAQ: JD) and Alibaba (NYSE: BABA), bringing his total holdings in these companies to $9.9 million and $9 million, respectively. On the flip side, he completely exited his positions in tech names such as Oracle (NYSE: ORCL), Google (NASDAQ: GOOGL), and Amazon (NASDAQ: AMZN).
Investing in gold carries risks, particularly if inflation subsides. The appeal of gold would also diminish if the Federal Reserve begins a rate-cutting cycle. For investors looking to hedge against inflation and market instability, however, following Burry’s lead could provide a robust and tangible store of value.
