Michael Burry switches Fannie Mae and Freddie Mac holdings

what happened

Investor Michael Burry is changing his exposure to Fannie Mae (FNMA) and Freddie Mac (FMCC), selling their common shares and buying junior preferred stock instead. GuruFocus, citing his Oct. 11 Substack post, said the move reflects concern that the U.S. Treasury could convert its claim into equity.

Burry is focused on the Treasury’s senior preferred position, valued at roughly $388 billion. If that holding were exchanged for common shares, existing owners could see their stakes reduced substantially. He estimates that common shareholders face dilution of at least 90%.

The adjustment followed a retracement in both mortgage-finance companies after they had surrendered much of the advance recorded since President Donald Trump’s election. Burry also cited bearish chart formations that could signal additional pressure. He did not leave the companies entirely: he purchased several preferred-stock series while selling the common positions, which would also let him recognize tax losses. Burry considers junior preferred shares potentially more favorable than common stock in a Treasury-led change to the capital structure, though the result is still uncertain.

why it matters

The report highlights how a possible Treasury conversion could affect the two share classes differently. That distinction is central to the market’s assessment of Fannie Mae and Freddie Mac securities while the ownership outcome remains unresolved.

instruments