Managed High Yield Plus Fund Inc. – Fund Commentary
November 04 2011 - 4:05PM
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 third quarter 2011 from UBS Global
Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s
investment manager
Market Review
The high yield market generated weak results during the third
quarter of 2011. High yield prices moved modestly higher in July,
benefiting from second quarter corporate profits that often
exceeded expectations. High yield prices then moved sharply lower
in August and September. Risk appetite, which was robust earlier in
the year, was replaced by extreme risk aversion given fears of a
double-dip recession, the downgrade of US government debt by a
major rating agency and the escalating European debt crisis. At one
point in September, the yield on the 10-year Treasury note fell to
1.72%, the lowest level since the 1940s. Given the high yield
market's decline during the third quarter, it moved into negative
territory year-to-date through the end of September as measured by
the BofA Merrill Lynch US High Yield Cash Pay Constrained Index1
(the “Index”). As one would expect given the extreme flight to
quality, lower-quality securities broadly underperformed
higher-quality securities during the quarter, with CCC rated bonds
significantly lagging BB rated bonds. From a sector perspective,
more defensive areas of the market outperformed their cyclical
counterparts.
Performance Review
For the third quarter of 2011, the Fund posted a net asset value
total return of -9.45%, and a market price return of -19.44%. On a
net asset value basis, the Fund underperformed its benchmark, the
Index, which returned -6.18% for the quarter.
We began the third quarter with overweights versus the index in
insurance, gaming, retail and technology. Over the quarter, we
reduced the magnitude of the overweight to insurance, as well as
reducing our financials exposure more broadly. In contrast, we
increased our exposure to industrials. We reduced our exposure to
services, primarily through a reduction in our gaming overweight.
We also sought to increase the average quality of the portfolio by
increasing exposure to the higher quality BB and BBB and above
rating categories, while reducing exposure to lower quality CCC and
below bonds.
Over the quarter, both sector allocation and issue selection
detracted from relative returns. The Fund’s security selection in
financials and, in particular, insurance, as well as the Fund’s
overweight to the gaming sector were the primary detractors. From a
ratings perspective, the Fund's relative underweight to
higher-quality bonds detracted as they outperformed over the
quarter. Given that the Fund is leveraged, this underperformance
was magnified when compared against the Index. (Leverage magnifies
returns on both the upside and the downside.)
Outlook
With the outlook for global growth deteriorating, we have
revised down our base case for GDP growth in the United States,
with expectations now the 0%-2% range. Weak housing and high
unemployment are expected to continue to constrain consumption and
growth prospects. These uncertain global growth expectations and
sovereign debt issues in Europe have continued to add to market
volatility. Non-sovereign credit fundamentals remain broadly
healthy, with corporate balance sheets in good shape overall. Many
companies have also been able to refinance at attractive rates and
term-out debt. Current high yield spreads appear to be at levels
that provide a sufficient cushion for a material increase in
defaults, which remain below average historical levels. The current
yield on the asset class remains attractive in an environment of
low growth, low cash rates and low defaults. That being said, the
potential for significant volatility remains.
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.
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