Can You Copy Michael Burry’s Bold Bet on Gold?

Michael Burry, the real-life investor who was tossed into the world spotlight after predicting the mortgage crisis, as portrayed in “The Big Short,” now has a heavy bet on gold. This was discovered in a routine SEC filing by his firm, Scion Asset Management. It revealed a shocking new element in his portfolio – a mutual fund that is pure gold. This unexpected discovery has many investors talking, many of whom are missing the nuance of how he chose his own fund’s gold exposure. Read on to learn how to copy Burry’s bold bet on gold.

Burry’s decision draws attention to the appeal of gold during political unrest and as a hedge against economic uncertainty. However, his less-than-routine choice of exposure should not be overlooked.

Burry’s Gold Exposure, “The Big Sprott”

Each quarter, large money managers are required by the Securities and Exchange Commission (SEC) to reveal their month-end holdings in a filing called 13-F. Michael Burry’s 13-F showed the addition of Sprott Physical Gold Trust (NYSE:PHYS). This was the top new holding, with 440,729 shares and representing 7.37% of the portfolio. At quarter-end, the value was $7.62 million.

Exploring Gold Investment Options

Gold has been breaking records almost weekly, so it’s no mystery why some may want in on the action. But there are many different ways to gain exposure, including buying gold bars or coins. This is the simplest option with fewer middlemen, but the challenge lies in safely storing it, and the processes of selling and delivery can be cumbersome.

An alternative is the Chicago Mercantile Exchange (CME), which makes contracts available on the commodity. However, investing in futures contracts is far from passive investing. This is because it involves contracts where traders agree to buy or sell gold at a certain price in the future. It can be risky and requires closer attention to the market.

Investors seeking gold exposure in equities have numerous options among publicly traded gold mining companies. While these stocks typically rise with gold prices, their value can also be influenced by the performance of the company. So the result is far from a 1:1 adjustment with gold movements.

Another method investors employ to have gold in their portfolio is buying an ETF, where investors let professionals manage futures contracts held by the ETF. This can be a good way to get exposure to gold prices, but it might not perfectly track the price of gold itself.

Michael Burry’s Gold Strategy

The method of exposure Michael Burry preferred was to buy a mutual fund that invests directly in gold. While mutual fund investing seems like a very low-tech grandpa thing to do, top investors who want to own gold see unmatchable advantages. Here are some perks that Sprott claims its gold mutual fund provides investors:

Fully Allocated Gold – It holds pure gold and nothing but gold, which means no CME contracts and no mining stocks, just gold bars held in a trust taking London Good Delivery (LGD), in physical gold bullion.

Redeemable for Gold – With certain restrictions, fund investors can either cash out or redeem shares for physical gold bullion.

Extremely Secure Storage – The trust’s assets are held by the Royal Canadian Mint, a Federal Crown Corporation of the Government of Canada. There is no levered financial institution between the unitholders and the Trust’s physical bullion, and there is no risk of financial loss in the event of bankruptcy or nationalization of the financial institution.

Potential Tax Advantage – There could be a sizeable tax advantage, according to Sprott’s website. It seems that for U.S. citizens, gains realized on the sale of the Trust’s units can be taxed at a capital gains rate of roughly 15%/20% versus the 28% collectibles rate applied to most precious metals, such as ETFs, coins, and bars.

Easy to Exchange and Liquid – Just like buying into any other large mutual fund, units can be purchased on any day the major exchanges are open.

There are many ways for investors of all sizes to invest in gold. Michael Burry’s gold exposure, like everything else the hedge fund manager does, is surely deliberate. His choice of Sprott Physical Gold Trust Units says a lot.

The year-to-date increase shown here using the TipRanks Mutual Fund Price & Analysis Tool is 14.63%.

The Big Takeaway

We can only guess why Michael Burry has taken a big position in gold, and we could all be wrong, or all be right, and never really know. So instead of debating why, we can gain more wisdom by looking at how the highly successful, broadly followed hedge fund manager chose to invest in gold.