How to hedge against inflation Michael Burry style
This is a portion of some of my recent inflation DD from researching Michael Burry/Scion's recent 13F plays. I thought it was an interesting investing strategy and wanted to share it here in case anyone is interested. There's more research over on [r/Burryology](https://www.reddit.com/r/Burryology/) (specifically [this post](https://www.reddit.com/r/Burryology/comments/nepc7l/the_bull_is_gasping_major_themes_from_michael/?utm_source=share&utm_medium=web2x&context=3)).
***Inflation, inflation, inflation! (21%+ of current holdings)***
If you've been following [r/Burryology](https://www.reddit.com/r/Burryology/) since its inception many eons ago (a little over a month ago), you likely guessed that the next 13F would reveal Burry's strategy for hedging and/or profiting off of the inflation situation. Would he buy/hold REITs as the hedge? What about gold, oil, and other commodities? Treasury inflation-protected securities (TIPS)?
We now have the answer.
Here are the direct inflation plays:
*Put options on* [***Ishares 20+ year treasury bond etf (TLT)***](https://www.investopedia.com/articles/investing/031915/overview-tlt-etf.asp) *-* *12.7% of current holdings*
*Probable Burry thesis:* rising inflation over the mid- to long-term will lead to the need to increase interest rates thus making these 20 year bonds less attractive.
*Some context:* The U.S. Treasury announced plans to start issuing 20-year treasury bonds in January 2020. The benefits to 20 year treasury bonds are that they're relatively safe, their value could increase if interest rates drop, and they're relatively liquid. The cons are that they're over a 20 year period (meaning you lock in very low interest rates at which you get paid), inflation may occur over that 20 year period and lead to an increase in interest rates that you'll miss out on, and rising interest rates in general hurt the value of these bonds ([link](https://www.mybanktracker.com/blog/investing/20-year-treasury-bonds-307834)).
*Call options on* [*Proshares trust ultrashort lehment 20+ year treasury etf (TBT)*](https://www.zacks.com/funds/etf/TBT/profile) *- 4.1%*
Probable Burry thesis: this is the same 20+ year treasury bond mentioned above so the strategy is likely the same. The difference here is that it's a call on an inverse bond ETF.
*Context:* The ProShares UltraShort 20+ Year Treasury seeks daily investment results, before fees and expenses that correspond to two times the inverse of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. (from Zacks article linked above).
*Put options on Ishares* [russell 2000 growth](https://www.investopedia.com/terms/r/russell2000.asp) *etf (IWO) - 3.1%*
*Probably Burry thesis:* There are two possibilities here. One is that the Russell 2000 is overpriced having outperformed the S&P 500 at 81% vs 43% since last May. The other is that inflation will lead to a recession that does actual damage to the economy which effectively makes a short on the Russell 2000 a bet against the overall economy.
*Context:* The Russell 2000 index measures the performance of the 2000 smaller companies that are included in the Russell 3000 index which itself is made up of nearly all U.S. stocks. It is seen as a bellwether of the American economy because it measures the performance of smaller businesses focused on the domestic market. It's considered more cyclical than the larger indexes which is to say that it follows the economy tightly.
*Others:*
1. *Shares of* *Proshares trust ultrashort lehment 20+ year treasury etf (TBT) - 0.5%*
2. *Call options on Proshares ultrapro short 20 + year t (TTT)*
***Out with the REITs***
One of the more interesting observations from Scion's Q4 2020 13F was a sleuth of positions in various REITs. He had a little over 17% of the portfolio in REITs:
* Uniti Group Inc - 3.98% (now 0%)
* The GEO Group Inc - 3.51% (now 0%)
* RPT Realty - 4.05% (now 0.5%)
* Urstadt Biddle Properties Inc - 2.81% (now 0.1%)
* CoreCivic Inc - 3.07% (overall net increase in the total position, now 0.7%)
In Q1 2021, REITs accounted for just 1.3% of Scion's holdings. He exited out of Uniti and GEO, trimmed Urstadt and RPT Realty, and increased the CoreCivic position. All-in-all, it seems he's bearish on REITs serving as the best vehicle for profiting off of inflation compared to shorting the 20 year treasury bond.
https://www.reddit.com/r/StockMarket/comments/neq3p7/how_to_hedge_against_inflation_michael_burry_style/
