Identifying Bond Fund Risks Before Getting Burned

The class action lawsuit involving the Oppenheimer Core Bond Fund (OPIGX) alleges that the firm understated the fund’s risks as reported in a WSJ article. The fund, being marketed in 529 college savings state plans, lost 35.8% in 2008 alone and 10% in the first three months of 2009. As reported in the media, the bond fund made leveraged bets on mortgage-based securities and credit default swaps. Using this fund as a case study, MPI’s research team produced a report “Quantitative Due Diligence of Fixed Income Portfolios” which demonstrates how returns-based style analysis and high-frequency data could have alerted investors and analysts to the fund’s risks long before its collapse. As featured in the research report, the chart below depicts an increase in implied leverage in early 2008.



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