Are Index funds the next sub-Prime CDOs?

After years of radio silence, Dr. Michael Burry - the small-time stockpicker who rose to fame for his bets against subprime mortgage bonds featured in the book (and later film) “the Big Short” - is once again doing the media rounds, talking about his latest equity plays and sharing his thoughts about the next big market blowups.


When I first started my career at BlackRock, the team had every year a left field prediction for the coming year and every year my two predictions are: Google will become the largest asset manger and ETFs blow up will be the next financial crisis. 7 years on neither happens :rofl:

Mismatch of liquidity in ETFs has always been the controversy. Lots of people buy into something that they can’t sell in the end fast enough as they want.


I do think indices will blow up, it just needs to have an event to get it started - a trigger point.

I don’t think google will become the biggest asset manager, Amazon is better positioned in my view.

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we have not yet seen an excess I’d say such as some sort of derivatives and leverage on ETF products. Most of the ETF products are quite conventionally by now

I think his point is that this trend has created value opportunities in small-cap stocks with low % passive ownership. His most recent 13F doesn’t appear to reflect this tilt:


So are we all piling into Japanese mid-cap semiconductor companies then? :wink:

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There’s an opinion piece on Burry’s prediction in the FT today. Typically for the FT, the author’s not a fan of active management. But they also make some good counter arguments to the “index funds are a bubble argument”:

  • By driving out inefficient active managers, they’re making the market more efficient
  • ETFs have been tested already in recent years, without major problems

Here’s the full story -

(it’s paywalled but you can read it by Googling the title & clicking through from the search results)

Why the index fund ‘bubble’ should be applauded - FT

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