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Oppenheimer May Reverse Corporate Cutback

01 Apr 2004

OppenheimerFunds, with $11 billion under management, is considering upping its holdings of corporates to take advantage of recent spread widening.

Chuck Moon
OppenheimerFunds, with $11 billion under management, is considering upping its holdings of corporates to take advantage of recent spread widening. Chuck Moon, portfolio manager of the $700 million Oppenheimer Bond Fund in Boston, said he will rethink the fund's underweight position in corporates if the market continues as it has in recent weeks and would buy corporate bonds if prices continued to trend downward. Generally, corporate spreads have widened in the last few weeks, although prices increased toward the end of last month on the back of a rebound in equity prices. He declined to say what sectors the fund might add to or quantify any increase to corporates.

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.

01 Apr 2004