Managed High Yield Plus Fund Inc. – Fund Commentary
NEW YORK -- November 16, 2012
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 2012 from UBS Global Asset Management
(Americas) Inc. (“UBS Global AM”), the Fund’s investment manager
Risk aversion, which was elevated at times during the second quarter, was
largely replaced with robust risk appetite during the third quarter. Economic
fundamentals in most developed countries remained weak while numerous macro
issues, including the ongoing European sovereign debt crisis, remained.
Nevertheless, these headwinds were largely overshadowed by announcements of
additional quantitative easing by central banks around the globe, including
the US Federal Reserve Board (Fed), the European Central Bank and the Bank of
The high yield bond market posted strong results during the quarter, with the
BofA Merrill Lynch US High Yield Cash Pay Constrained Index (the “Index”)
gaining 4.58%.^1 Solid corporate fundamentals, continued low defaults and
strong demand from investors seeking to generate incremental yield in the low
interest rate environment supported high yield bond prices. From a ratings
perspective, better quality rating categories broadly underperformed lower
quality bonds, with the BB- and B-rated segments lagging the CCC and
For the third quarter of 2012, the Fund posted a net asset value total return
of 5.46%, and a market price return of 3.04%. On a net asset value basis, the
Fund outperformed its benchmark, the Index, which returned 4.58% for the
During the quarter, issue selection was the primary driver of positive
relative returns. Particularly, our holdings in the energy,
telecommunications, insurance and diversified financial services sectors were
most beneficial. This was somewhat offset by security selection in banks.
Sector allocation, overall, was also additive for results, especially our
overweights in energy, gaming, services and chemicals. On the downside,
underweights to home builders and electric utilities were drags on results,
although we added to our allocations to both sectors to move closer to neutral
positions at the end of the quarter.
Over the quarter, we also increased portfolio leverage to improve the level of
income generated by the Fund. When the quarter began we had a bias toward
higher quality issuers and issues. During the period, as we added leverage, we
increased the Fund's exposure to lower-rated bonds, including bonds rated B
and, to lesser extents, bonds rated BB and those rated CCC and below. From a
sector perspective, we increased the Fund's exposure to energy, diversified
financials, banks and thrifts. In contrast, we reduced our exposure to
chemicals and, to lesser extents, paper and capital goods. Finally, we reduced
the Fund's cash position during the quarter.
We began the third quarter with overweights to services, gaming and
telecommunications, and underweights to building materials, banking, consumer
products and health care sectors. We ended the quarter with overweights to
energy, services and telecommunications, and underweights to consumer
products, building materials and restaurants.
Credit fundamentals remain supportive for high yield, with companies generally
reporting solid earnings and manageable corporate leverage and debt profiles.
We remain concerned that the lowest quality issuers could suffer in a
persistent slow economic growth environment or from any near term economic
shock. Credit spreads have tightened, driving yields to historic lows.^2 In
our view, despite relatively low yields, investors remain well-compensated for
default risk. While room remains for further spread tightening, we continue to
anticipate periods of heightened volatility, given the macro uncertainties we
face. As a consequence, we retain a slightly defensive stance from an issuer
and industry perspective with a preference for less cyclical issuers and
industries. The potential downside to this defensive stance is that demand for
high yield could continue to escalate, based on further fundamental
improvement or strong technicals, in what remains a low interest rate
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
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 leas one year. The index is market weighted, so that larger bond issuers
have 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.
^2 “Spreads” refers to differences between the yields paid on US Treasury
bonds and other types of debt, such as high yield bonds.
UBS Global Asset Management
Closed-End Funds Desk: 888-793 8637
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