The Franklin Income Fund is used to top-dog status among its mutual fund peers, but a 40 percent slide in oil prices since June has hammered its recent performance.

At the end of September, the $94 billion fund had nearly $2 billion in bets on the junk-rated debt of several small exploration and production companies, almost all of which have tanked as crude oil futures slumped to four-year lows.

But that hasn't hurt the spirit of Ed Perks, the manager of the portfolio, who describes the sell-off in the energy sector as "indiscriminate."

"I think it's a spectacular opportunity," he told Reuters in an interview, adding he is now sifting through hard-hit energy players for those most likely to survive.

The Franklin fund's three-month return is negative 3.93 percent, compared to the peer average of negative 0.74 percent, according to Morningstar. In contrast, the fund has beat 96 percent of its peers over the past decade, with an annualized total return of 6.87 percent.

Perks declined to say what he has been buying or selling since September. But he said he is screening companies whose bond prices have plummeted even though their debt maturities are several years out.

"We've seen some bonds down 10 points in two weeks with nothing happening to their long-term liquidity prospects," he said.

Perks says if he makes the right bets he could boost the level of his portfolio's income over the next three to five years, thanks partly to junk-bond bargain hunting. "But it's not been pleasant to go through at the moment," he said.

Jonathan Stanley, a high-yield sector manager at Newfleet Asset Management, said managers who thought junk bonds were too expensive have an opportunity to scoop up beaten-down debt with yields above 10 percent.

One prospect is Halcon Resources Inc, which reported about $815 million in liquidity at the end of September. Perks' Franklin Income Fund held $281 million worth of Halcon bonds at the end of September. Since then, the price on Halcon bonds maturing in 2020 has dropped 27 percent.

Stanley said the bond market might be too pessimistic about Halcon.

"We're scrubbing the numbers and saying, with oil at $50 to $60 a barrel, who can survive? We're looking at Halcon closely," Stanley said.