Managed High Yield Plus Fund Inc. – Fund Commentary
April 18 2012 - 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 first quarter 2012 from UBS Global
Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s
investment manager
Market Review
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.
Performance Review
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.
Outlook
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.
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