Michael Burry, the gutsy hedge-fund manager whose life was told in the Oscar-winning biopic “The Big Short,” is taking aim at star stock picker Cathie Wood.
In a filing on Monday, Burry disclosed that his firm, Scion Asset Management, held bearish put options against 235,500 shares of Woods’ actively managed ARK Innovation exchange-traded fund (ticker: ARKK) at the end of the second quarter. The new position was valued at almost $31 million, according to the quarterly filing, which is required for hedge funds above a certain size.
A put contract gives Scion the right to sell shares in the ETF at a previously agreed price before a certain date. If ARK Innovation’s shares drop below the threshold before the options expire, the hedge fund can sell the shares for a profit.
Burry isn’t the only investor betting that the price of ARK innovation will fall. The volume of put options traded on ETF is rising, while the short interest on the ETF recently reached a record high. There is even a Short ARKK ETF in the filing that, if approved by the Securities and Exchange Commission, would allow retail investors—those who can’t sell shorts or trade options directly—to make bearish bets against Woods.
Wood’s company, ARK Invest, took in billions of new assets last year from spectacular performances by some of her active ETFs focused on high-growth innovation-driven stocks. Several were among 2020’s best-performing funds, with returns of more than 100%.
But the funds have struggled to maintain that momentum this year. Many of their stockholdings are trading at lofty valuations that are betting on huge expected growth in the future. As inflation flares up and interest rates rise, however, the current value of the growth companies’ future cash flow is being diminished. The ARK Innovation ETF is now 6% down for the year, with $500 million asset outflows in the past month.
Burry has been cautioning about the unsustainable valuations of some ARK holdings for months. He already holds big bearish positions against electric car maker Tesla (TSLA), one of the top investments in ARK ETFs. Monday’s filing shows that Burry increased his bearish puts on Tesla to nearly 1.1 million shares, up from 800,100 shares in the first quarter. Those bets are worth $731 million.
Tesla shares have declined 2.8% year to date, while ARK Innovation has lost 6% in value. Still, both are trading at much higher levels compared to the start of 2020, up by 675% and 134%, respectively.
Burry became famous for successfully betting against the housing bubble, which eventually touched off the financial crisis in 2008. His story is just one of several told by Michael Lewis in his book “The Big Short” and later made into a movie.
The financier was also one of the first big-name investors to bet on GameStop in 2020, which led to a buying frenzy in the videogame retailer’s stock earlier this year. But Burry sold his entire stake before GameStop became a meme stock on Reddit, missing out on the 2,000% surge.
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