My Fund Comparison
Managed High Yield Plus Fund, Inc. - Fund Commentary
UBS Global Asset Management
NEW YORK--(BUSINESS WIRE)-- Managed High Yield Plus Fund Inc. (NYSE: HYF) (the ?Fund?) is a closed-end management investment company seeking high income, and secondarily, capital appreciation, primarily through investments in lower rated, income-producing debt and related equity securities.
Fund Commentary for the first quarter 2012 from UBS Global Asset Management (Americas) Inc. (?UBS Global AM?), the Fund?s investment manager
The first quarter of 2012 delivered a meaningful rally in risk assets, with high yield bonds being no exception. Strengthening US economic data, notably in rising employment figures, have been supportive of economic recovery and the outlook for growth. Investor sentiment was further bolstered as concerns surrounding the Eurozone receded, primarily driven by easing financial conditions through the European Central Bank?s three-year Long-Term Refinancing Operation (LTRO) and the agreement reached over the ?fiscal compact,? which paved the way for the Greek bailout. Corporate fundamentals overall remained healthy, with liquidity levels and net leverage ratios at manageable levels for most companies. The first quarter saw the primary market for new high yield debt offerings re-open with over $100 billion in new issuance, which was met with robust investor demand as the asset class as a whole saw strong inflows during the quarter, providing opportunities for companies to refinance short-term debt into longer-term debt. In addition, defaults remained low and well below historical averages. From a ratings perspective, lower-quality rating categories broadly outperformed higher-quality bonds, with the CC- and CCC-rated segments outperforming the BB- and B-rated segments, particularly during the early part of the quarter. All industries produced positive returns during the quarter, with banks and insurance outperforming on a relative basis, while utilities and energy lagged.
For the first quarter of 2012, the Fund posted a net asset value total return of 7.41%, and a market price return of 5.23%. On a net asset value basis, the Fund outperformed its benchmark, the BofA Merrill Lynch US High Yield Cash Pay Constrained Index1 (the ?Index?), which returned 5.06% for the quarter.
We began the first quarter with overweights versus the index to gaming, energy and chemicals, and underweights to banks and thrifts, building materials and homebuilders. We ended the quarter with overweights to services, gaming, energy and chemicals, and underweights to diversified financials, building materials, healthcare and consumer products.
Over the quarter, we sought to position the portfolio in a more defensive manner, expressing a preference for better quality issuers and issues. We added exposure to bonds rated B, while reducing exposure to bonds rated CCC and below. From a sector perspective, we reduced exposure to gaming, telecommunications, electric utilities and energy, while adding exposure to services, media and cable TV. Elsewhere, we increased our underweight to healthcare and reduced the extent of our underweight to banking, while reducing exposure to financial services. We added to a small opportunistic position in commercial mortgage-backed securities (CMBS) during the quarter based on attractive relative valuations.
Over the quarter, issue selection was the primary driver of relative returns, while sector allocation and duration positions detracted modestly overall. Within industrials, positive contributors included energy, primarily through issue selection, and gaming, where both issue selection and sector allocation added value. Transportation (ex-air), telecommunications and specialty retail were also positive for results. Conversely, positioning in building and construction, as well as building materials, detracted modestly.
From a strategy perspective, we ended the quarter with a modest defensive position, continuing to express a preference for better quality issues and issuers. While market conditions have improved, liquidity remains poor by historical standards. We have also modestly reduced our leverage as part of our defensive positioning. Recent economic data have continued to be supportive of our central scenario for positive, albeit below average, economic growth in the US. While investor sentiment improved during the quarter, we continue to anticipate periods of heightened volatility. We believe credit fundamentals remain healthy and that current high yield spreads should provide a decent cushion should defaults rise from their current levels, which remain below historical averages.
Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. Views and opinions were current as of the date of this press release. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the Fund and UBS Global AM reserve the right to change views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund?s future investment intent.
Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Any Fund net asset value ("NAV") returns cited in a Fund Commentary assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. Any Fund market price returns cited in a Fund Commentary assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund's Dividend Reinvestment Plan. Returns for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and other distributions, if any, or on the sale of Fund shares.
1 The BofA Merrill Lynch US High Yield Cash Pay Constrained Index is an unmanaged index of publicly placed non-convertible, coupon-bearing US dollar denominated below investment grade corporate debt with a term to maturity of at least one year. The index is market weighted, so that larger bond issuers have a greater effect on the index?s return. However, the representation of any single bond issue is restricted to a maximum of 2% of the total index. The index is not leveraged. Investors should note that indices do not reflect the deduction of fees and expenses.