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Global High Income Fund Inc. ? Fund Commentary
UBS Global Asset Management
NEW YORK--(BUSINESS WIRE)-- Global High Income Fund Inc. (the "Fund") (NYSE: GHI) is a non-diversified, closed-end management investment company seeking high current income and, secondarily, capital appreciation through investments primarily in securities of emerging markets debt issuers.
Fund Commentary for the first quarter 2012 from UBS Global Asset Management (Americas) Inc. (?UBS Global AM?), the Fund?s investment advisor
During the first quarter, US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a return of 4.86%. Local market investments (in other words, emerging markets debt denominated in the currency of the issuer) posted even stronger results, finishing the quarter with a return of 8.30%, as measured by the JP Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified).
As these returns indicate, the emerging markets debt asset class performed well during the quarter. The asset class began the year strongly, as emerging markets debt spreads tightened significantly in January and February.1 This was driven by robust investor risk appetite, as economic data in the US strengthened and there were expectations for a soft landing for China's economy. In addition, concerns relating to the European sovereign debt crisis moderated, as the European Central Bank?s three-year Long-Term Refinancing Operation (LTRO) soothed the markets, at least for the time being. Greece also successfully restructured its debt with relatively little drama. Nevertheless, the asset class weakened somewhat toward the end of the quarter, as new issuance increased and investors appeared to capture some of their earlier profits.
For the first quarter of 2012, the Fund posted a net asset value total return of 6.31%, and a market price total return of 13.52%. On a net asset value basis, the Fund slightly underperformed its benchmark, the Global High Income Fund Index (the ?Index?), which returned 6.61% for the quarter.2
During the quarter, the Fund's overweight exposure to local currencies was the main contributor to performance versus the benchmark. In particular, overweights to the Mexican and Chilean pesos, as well as the Indian rupee, were rewarded. Local market exposures, including the Fund's overweight to Brazilian inflation-linked bonds, were positive for performance as well. Elsewhere, allocations to higher yielding US dollar-denominated sovereign debt from Eastern European countries such as Belarus and Albania were beneficial, as were the Fund?s holdings of US dollar-denominated sovereign debt from Jordan and quasi-sovereign bonds from the United Arab Emirates.3
The Fund's small overweight to the Brazilian real detracted from results, as did an underweight to the Hungarian forint at the beginning of the quarter. Underweights to some counties that experienced spread tightening during the quarter, such as Mexico, Chile, Columbia and the Ivory Coast, were also slight drags on benchmark-relative results.
We maintain our positive long-term outlook for the emerging markets debt asset class. While global growth is generally moderating, most emerging market countries continue to have superior growth versus their developed country counterparts. In addition, solid fundamentals, including stable reserves, generally solid fiscal situations and lower indebtedness could be supportive for emerging markets sovereigns, quasi-sovereigns and currencies. We also feel that demand for emerging markets debt will be strong overall, given investors' search for yield in the low interest rate environment. Against this backdrop, we feel that additional spread tightening is possible as the year progresses. That being said, we expect to see periods of heightened short-term volatility. As was the case at times during 2011, this could be driven by macro issues, such as fears of contagion from the European sovereign debt crisis and concerns for global growth, and especially growth (or lack of it) in certain developed countries.
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 Spreads refers to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.
2 Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) and 50% J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified). Investors should note that indices do not reflect the deduction of fees and expenses.
3 Quasi-sovereign bonds are securities issued by entities supported by the local government.
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