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 2013 from UBS Global Asset
Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment
The markets were volatile at times during the first quarter given
uncertainties surrounding US fiscal and monetary policy, geopolitical
concerns, inconclusive elections in Italy and a banking crisis in
Cyprus. Despite speculation that the US Federal Reserve Board (the
“Fed”) may moderate quantitative easing sooner than expected, Fed
Chairman Ben Bernanke reiterated his commitment to policy accommodation.
The US spread sectors (i.e., non-US Treasury fixed income securities)
largely treaded water during the first quarter and generally performed
in line with equal duration Treasuries. One notable exception was the
high yield bond market, as it posted solid absolute and relative results
during the quarter. All told, the Bank of America Merrill Lynch US Cash
Pay High Yield Constrained Index1 (the “Index”) returned
2.87% during the quarter. The high yield market was supported by overall
strong demand, positive corporate fundamentals and continued low
defaults. From a ratings perspective, better-quality rating categories
broadly underperformed lower-quality bonds, with the BB- and B-rated
segments lagging the CCC and below-rated segment.
For the first quarter of 2013, the Fund posted a net asset value total
return of 3.37%, and a market price return of 3.01%. On a net asset
value basis, the Fund outperformed the Index, its benchmark, which, as
previously stated, returned 2.87% for the quarter.
Spread management contributed to performance during the quarter,2
particularly our overweights to energy, services and gaming sectors.
Overweights to cable television, telecommunications and insurance
sectors were also beneficial, albeit to lesser extents. Security
selection within those sectors was also positive for performance. The
portfolio continued to use leverage during the quarter; this was helpful
given the market's positive results, as well as our ability to boost the
income generated by the Fund. On the downside, an underweight to steel,
positioning in the food/drug retail sector and security selection in the
bank sector were modest drags on results.
A number of changes were made to the portfolio during the quarter. We
increased the Fund's allocations to the telecommunications, technology
and chemicals sectors, adding to overweight positions. Our overweight to
the energy sector declined, as a number of individual securities were
called prior to their maturity. Elsewhere, we somewhat reduced our
overweight position in banks, reduced our exposure to super retail
toward neutral and moved from an overweight to a small underweight in
the food/drug retail sector. We also added exposure to building
materials, moving from underweight to overweight.
We began the first quarter with our largest overweights to energy, cable
television, gaming and services, and underweights to broadcasting,
consumer products, steel and diversified media. We ended the quarter
with the most pronounced overweights to energy, services,
telecommunications, technology and gaming sectors. Our largest
underweights at the end of March were to steel, consumer products,
diversified media, restaurants and textiles/apparel.
In our view, the high yield market should continue to provide
opportunities for income-oriented investors to take advantage of
periodic macro-driven volatility in what remains a low-yield
environment. We expect the backdrop of modest economic growth to
continue to be generally favorable for credit investors. In addition, we
believe that the current low interest rate environment will continue to
support demand for high yield bonds.
Corporate fundamentals remain generally sound, although we do recognize
modestly declining aggregate fundamentals and deteriorating underwriting
trends. Our analysts expect defaults to remain low and below historical
averages. However, lower-quality issuers could be susceptible to
persistently slow economic growth or a macro shock. Primary market
activity was strong throughout the first quarter, although net issuance
was only modestly positive, as upgrades to investment grade and calls by
issuers offset new issuance.
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.
1 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.
2 “Spreads” refers to differences between the yield
paid on US Treasury bonds and other types of debt, such as
corporate or emerging market bonds.