The move would mark a 180-degree shift in the strategy of the fund. It recently initiated large cutbacks to its credit allocation in favor of agencies and structured securities, which Moon believes offer better value and risk characteristics. Moon recently reduced the fund's holdings of investment-grade paper by 15%. He feels that the high-yield universe is fully priced and doesn't offer compelling value, and he cut the allocation in half. Overall, in the single to middle digits, junk bonds account for only a small portion of the portfolio.
Currently, the fund is underweight corporates, relative to a blended benchmark it uses that contains 40% in corporates. Moon said the Oppenheimer fund maintains an overweight status in higher-quality credits, is flat in the lower-quality credits and is underweight in double-A and triple-A paper. He feels that, given current pricing within the corporate sector, there is not a lot of value there when compared to other asset classes, such as asset-backeds, mortgage-backeds and commercial mortgage-backeds, which he holds in place of corporates at times. Moon is maintaining the fund's overweight in the auto sector because he is getting offered auto names at high yield-type levels, even though he believes their business structure is of an investment-grade quality.
The blended index fund is benchmarked against a government/corporate index that also contains 60% in government bonds. He declined to be more specific about the firm's current or target allocations to spread product.