Managed High Yield Plus Fund Inc. – Fund Commentary and Portfolio Statistics
NEW YORK--(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 fourth quarter 2013 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment manager
The global fixed income market finished a challenging year by posting generally weak results during the fourth quarter. Both short- and long-term US Treasury yields moved higher, as economic data was generally solid. Also driving yields higher was the Federal Reserve Board's (the "Fed") announcement in December that it would begin paring its asset purchase program. In its official statement at the conclusion of its meeting the Fed said, "In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month." Looking at the fourth quarter as a whole, the US yield curve steepened, as longer-term yields increased more than their shorter-term counterparts. The overall US bond market, as measured by the Barclays US Aggregate Index, declined 0.14% during the fourth quarter. The market fell 2.02% for the year as a whole, its first calendar-year decline since 1999.
Despite rising interest rates, most spread sectors1 generated modest gains during the fourth quarter. The quarter began on a positive note, as investor sentiment remained positive following the Fed's surprise decision in September to delay tapering its asset purchase program. However, a portion of those gains were given back in November and December, as economic data often exceeded expectations, and the Fed announced that it would start paring its asset purchases. As was the case for the year as a whole, one of the best performing sectors during the fourth quarter was high yield debt, as the BofA Merrill Lynch US High Yield Cash Pay Constrained Index2 (the “Index”) returned 3.47%. From a ratings perspective, higher-quality rated high yield debt broadly underperformed lower-quality bonds, with the BB- and B-rated segments lagging the CCC and below-rated segments. Supporting the high yield market were continued solid corporate fundamentals, low defaults and overall solid demand.
For the fourth quarter of 2013, the Fund posted a net asset value total return of 4.79% and a market price return of 3.74%. The Fund outperformed the Index, which, as previously stated, returned 3.47% for the quarter.
Within spread management, security selection was the main contributor to performance during the quarter, particularly our holdings in the energy, telecommunications and diversified financial services sectors. However, this was modestly offset by our holdings in the utilities, chemicals and healthcare sectors. Sector positioning did not materially impact performance during the quarter.
There were no significant adjustments to the portfolio during the quarter, other than the small reduction of leverage. Market liquidity and supply dwindled as we approached the holidays, and it was difficult to allocate cash into bonds. We expect to re-deploy that leverage in early 2014 or on potential market weakness.
We expect to see the US economic expansion continue in 2014, although the pace could remain somewhat below its historical average. While the Fed began to modestly scale back its monthly asset purchases in January 2014, we believe that the central bank's monetary policy will remain accommodative overall, given continued elevated unemployment and benign inflation. Turning to the high yield market, we expect near-term defaults to remain low and demand to be generally strong, as investors seek to generate incremental yield in the low interest rate environment. We are closely monitoring the fundamentals in the high yield market as, in aggregate, credit metrics such as leverage and liquidity appear to have leveled off. While underwriting trends appear to be marginally deteriorating, as evidenced by increased leverage, we still believe that the high yield bond market remains disciplined overall. In general, the relative pricing and terms on new issuance appears to appropriately reflect inherent credit risk.
Portfolio statistics as of December 31, 20133
|Top ten corporate bonds, including coupon and maturity||Percentage of total portfolio assets|
|SquareTwo Financial Corp., 11.625%, 04/01/2017||1.4%|
|DISH DBS Corp., 7.875%, 09/01/2019||1.2|
|International Lease Finance Corp., 7.125%, 09/01/2018||1.1|
|Sabine Pass Liquefaction LLC, 5.625%, 02/01/2021||1.0|
|Midstates Petroleum Co., Inc., 10.750%, 10/01/2020||1.0|
|Pacific Drilling SA, 5.375%, 06/01/2020||0.9|
|Intelsat Jackson Holding SA, 7.250%, 10/15/2020||0.8|
|Ally Financial, Inc., 8.000%, 03/15/2020||0.8|
|Nova Chemical Corp., 8.625%, 11/01/2019||0.8|
|Frontier Communications Corp., 8.500%, 04/15/2020||0.7|
Top five industries
Percentage of total portfolio assets
|Energy - exploration & production||10.6%|
|Telecom - integrated/services||5.8|
|Support - services||5.5|
|Media - cable||5.3|
|Credit quality4||Percentage of total portfolio assets|
|BB- or higher||44.4%|
|CCC+ and lower||11.8|
|Net asset value per share5||$2.26|
|Market price per share5||$2.03|
|Weighted average life||5.11 yrs|
|Weighted average life to maturity||7.21 yrs|
|Duration-leverage adjusted6||5.85 yrs|
A spread sector refers to non-government fixed income sectors, such as high yield bonds, commercial mortgage-backed securities (CMBS) and investment grade corporate bonds. The spread measures the difference between the yields paid on non-government securities versus those paid on government securities.
The BofA Merrill Lynch US High Yield Cash Pay Constrained Index is an unmanaged index of publicly placed nonconvertible, coupon-bearing US dollar-denominated below investment grade corporate debt with a term to maturity of at least one year. The index is market-capitalization 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.
|The Fund's portfolio is actively managed, and its portfolio composition will vary over time.|
Credit quality ratings shown in the table are based on those assigned by Standard & Poor’s Financial Services LLC, a part of McGraw-Hill Financial (“S&P”), to individual portfolio holdings. S&P is an independent ratings agency. Credit ratings range from AAA, being the highest, to D, being the lowest based on S&P’s measures; ratings of BBB or higher are considered to be investment grade quality. Unrated securities do not necessarily indicate low quality. Further information regarding S&P’s rating methodology may be found on its website at www.standardandpoors.com. Please note that references to credit quality made in the commentary preceding the table reflect ratings based on multiple providers (not just S&P) and thus may not align with the data represented in this table.
|5||Net asset value (NAV), market price and yields will fluctuate. NAV yield is calculated by multiplying the current month’s dividend by|
|12 and dividing by the month-end net asset value. Market yield is calculated by multiplying the current month’s dividend by 12 and dividing by the month-end market price.|
|6||Duration is a measure of price sensitivity of a fixed income investment or portfolio (expressed as % change in price) to a 1|
|percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features. Duration is unadjusted for leverage. Duration-leverage adjusted is estimated by dividing duration by an amount equal to one minus the leverage percentage.|
As a percentage of adjusted assets. Adjusted net assets equals total assets minus liabilities, excluding liabilities for borrowed money.
Any performance information reflects the deduction of the Fund’s fees and expenses, as indicated in its shareholder reports, such as investment advisory and administration fees, custody fees, exchange listing fees, etc. It does not reflect any transaction charges that a shareholder may incur when (s)he buys or sells shares (e.g., a shareholder’s brokerage commissions).
Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. The 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.
Investing in the Fund entails specific risks, such as interest rate risk, the greater credit risks inherent in investing primarily in lower-rated, higher-yielding bonds as well as the increased risk of using leverage (that is, borrowing money to invest in additional portfolio securities). Further detailed information regarding the Fund, including a discussion of principal objectives, principal investment strategies and principal risks, may be found in the fund overview located at http://www.ubs.com/closedendfundsinfo. You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.
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