O'Neil is cutting back the fund's exposure to risky assets overall, reducing his position across virtually every fixed-income category and adding exposure to U.S. Treasury bonds. Treasuries now make up 32 percent of assets, more than double what it was a year ago, according to Barron's.

“The risk assets we purchased are priced for perfection,” he said in the report. “There isn’t a lot of value and very little margin for error.”

He has also increased his exposure to inflation-protected Treasuries, bringing the fund's position in TIPS to more than 6 percent of total assets, with a focus on intermediate and longer-term bonds.

Ford believes interest rates are likely to rise modestly as inflation edges up, but strong demand for fixed income from retiring baby boomers and overseas investors should have a stabilizing effect.

Despite disappointing numbers recently he expects wage growth to pick up soon, driving inflation.

“If we’re right, there is going to be a larger total return for those [longer duration] securities,” he says. The fund’s overall duration, recently 5.4 years, is slightly less than the Bloomberg Barclays U.S. Aggregate.

The report also noted that O'Neil has been adding to handpicked names in the energy space in both investment grade and high yield, including Anadarko Petroleum (>> Anadarko Petroleum) and emerging market plays including Brazil's state-controlled oil company Petrobras (>> Petroleo Brasileiro SA Petrobras) and Mexico's state oil company Pemex .

However, the fund has reduced its high-yield and emerging market ownership to just 7.3 percent and 4.6 percent, respectively. It has also trimmed some 10 percentage points from its corporate investment-grade position to 23.3 percent of assets and cut agency mortgage-backed securities to 18 percent of assets, compared to more than 28 percent for the benchmark.

(Reporting by Dion Rabouin; Editing by Phil Berlowitz)

Stocks treated in this article : Anadarko Petroleum, Petroleo Brasileiro SA Petrobras