Strategic Global Income Fund, Inc. – Fund Commentary
NEW YORK -- November 16, 2012
Strategic Global Income Fund, Inc. (the "Fund") (NYSE: SGL) is a
non-diversified, closed-end management investment company seeking a high level
of current income as a primary objective and capital appreciation as a
secondary objective through investments in US and foreign debt securities.
Fund Commentary for the third quarter of 2012 from UBS Global Asset Management
(Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor
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 US spread sectors (non-US Treasury fixed income securities) generated
strong results during the third quarter and outperformed equal duration
Treasuries. The overall US bond market, as measured by the Barclays US
Aggregate Index, returned 1.58% during the third quarter. Risk taking was
rewarded during the quarter, as lower rated high yield bonds generated
superior results. Also posting strong returns were investment grade corporate
bonds, commercial mortgage-backed securities (CMBS) and mortgage-backed
securities (MBS). More modest gains were registered by government agencies and
The emerging markets asset class generated strong results during the third
quarter. US dollar-denominated emerging markets debt, as measured by the JP
Morgan Emerging Markets Bond Index Global (EMBI Global), posted a return of
6.76% over the period. Local market investments (that is, investments
denominated in the local emerging markets currency) also rallied during the
quarter, returning 4.80%, based on the JP Morgan GBI-EM Global Diversified
As discussed, the high yield bond market posted positive results during the
quarter, with the BofA Merrill Lynch US High Yield Cash Pay Constrained Index
gaining 4.58%. Supporting high yield bond prices were solid corporate
fundamentals, continued low defaults and strong demand from investors seeking
to generate incremental yield in the low interest rate environment. From a
ratings perspective, better-quality rating categories broadly underperformed
lower-quality rating categories, with the BB- and B-rated segments lagging the
CCC- and below-rated segments.
During the third quarter of 2012, the Fund posted a net asset value total
return of 6.33% and a market price total return of 6.18%. On a net asset value
basis, the Fund outperformed its benchmark, the Strategic Global Benchmark
(the “Index”),^1 which returned 4.23% for the quarter.
The Fund's spread sector exposures drove its outperformance during the third
quarter.^2 In particular, the Fund's allocations to corporate credit (both
investment grade and high yield), emerging markets debt, CMBS and MSB were
additive for results. Overall, duration positioning did not meaningfully
In terms of the Fund's high yield exposure, both security selection and sector
allocation were positive for results. The Fund benefited from its positioning
in a wide array of industries, including gaming, paper, transportation,
energy, technology and financials. We tactically adjusted our high yield
allocation during the quarter, increasing exposure to individual securities in
which we have strong fundamental views.
In terms of the Fund's emerging markets debt exposure, the Fund's allocation
to US dollar-denominated bonds was beneficial for results. In contrast to
their weak results during the prior three months, our allocations to higher
risk countries like Argentina and Venezuela contributed to performance
throughout the third quarter. The Fund's quasi-sovereign bonds in the Middle
East and in Russia also boosted performance.^3 Our overweight to local
currencies (that is, investments denominated in the local emerging markets
currency) was also rewarded, especially in September when they rallied sharply
following the Fed's unveiling of QE3, its latest quantitative easing
initiative. In particular, allocations to the Indian rupee, the Nigerian naira
and the Ghanaian cedi enhanced the Fund's results. Detracting somewhat from
performance during the quarter were the Fund's underweights to high quality US
dollar-denominated debt from Brazil, Mexico and Panama.
Economic growth in the US has moderated in recent months. While accommodative
monetary policy by the Fed and other central banks should be supportive, it
cannot mask the fact that economic conditions around the globe are
deteriorating. Within the US fixed income market, we envision a "tug of war"
of sorts. On one hand, the financial system is full of liquidity, as the Fed's
near-zero interest rate policy is driving investors to riskier assets in order
to generate higher returns. On the other hand, weakening fundamentals could
test investors' resolve. Against this backdrop, we expect to see periods of
volatility, especially in light of the ongoing European sovereign debt crisis
and weaker growth in China, as well as uncertainties surrounding the political
landscape post the November election and rapidly approaching "fiscal cliff."
We maintain our positive long-term outlook for the emerging markets. However,
those same unresolved macro issues that could impact the US fixed income
market could affect the emerging markets debt asset class as well. Against
this backdrop, we reduced certain holdings during the third quarter to capture
profits and to reduce the Fund's overall risk exposure. Should spreads widen
from current levels, we would look to add to our risk exposure.
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.
The Strategic Global Benchmark is an unmanaged index compiled by the
advisor, constructed as follows: 67% Citigroup World Government Bond
^1 Index (WGBI) and 33% JPMorgan Emerging Markets Bond Index Global (EMBI
Global). Investors should note that indices do not reflect the deduction
of fees or expenses.
^2 “Spreads” refers to differences between the yields paid on US Treasury
bonds and other types of debt, such as emerging markets bonds.
^3 Quasi-sovereign bonds are securities issued by entities supported by the
UBS Global Asset Management
Closed-End Funds Desk: 888-793 8637
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