The collapse of the Oppenheimer Core Bond fund had many scratching their heads as to how this could have happened. The past two decades have seen bond funds in seemingly safe categories lose hundreds of millions of dollars. Fortunately for investors, there are tools and techniques available to provide early warning signs that can help avert a potential disaster.
The OCB fund, invested heavily in credit and mortgage-backed securities, lost 35 percent in 2008 and an additional 10 percent in the first three months of 2009. The risks were further multiplied because of the extensive use of derivatives such as total-return and credit-default swaps. The case has received enormous attention in part because the popularity of the OCB fund with 529 state plans resulted in significant losses to thousands of individual college savings accounts. Even as class-action suits were filed, the central question remains: What lessons ....