Fort Dearborn Income Securities, Inc. – Fund Commentary
NEW YORK -- November 16, 2012
Fort Dearborn Income Securities, Inc. (the "Fund") (NYSE: FDI) is a closed-end
bond fund managed by UBS Global Asset Management (Americas) Inc. The Fund
invests principally in investment grade, long-term fixed income debt
securities. The primary objective of the Fund is to provide its shareholders
*A stable stream of current income consistent with external interest rate
*A total return over time that is above what they could receive by
investing individually in the investment grade and long-term maturity
sectors of the bond market.
Fund Commentary for the third quarter 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
During the third quarter of 2012, the Fund posted a net asset value total
return of 4.55% and a market price total return of 5.96%. The Fund, on a net
asset value return basis, outperformed the Investment Grade Bond Index (the
“Index”),^1 the Fund’s benchmark, which posted a return 3.84% for the quarter.
The Fund's spread sector exposures drove its outperformance during the third
quarter. Particularly, the Fund's allocations to investment grade corporate
bonds, CMBS, MBS and a small out-of-the-benchmark allocation to high yield
were additive for results. In addition, security selection within these
sectors was beneficial for performance. Within the investment grade corporate
bond space, we added particular value from our overweights to the energy and
financials subsectors. Security selection in financials was also a significant
contributor to results during the quarter.
Elsewhere, our duration positioning was a slight contributor to performance.
The Fund's duration was tactically adjusted and, at times, shorter than that
of the Index. However, as of September 30, 2012, the Fund’s duration^2 was
10.47 years, modestly longer than the Index’s duration of 10.39 years.
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."
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 Investment Grade Bond Index is an unmanaged index compiled by the
Advisor, constructed as follows: From 12/31/81 to present—5% Barclays US
Agency Index (7+ years), 75% Barclays US Credit Index (7+ years), 10% Barclays
US Mortgage-Backed Securities Index (all maturities) and 10% Barclays US
Treasury Index (7+ years). 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 emerging market bonds.
UBS Global Asset Management
Closed-End Funds Desk: 888-793-8637
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