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
Fund Commentary for the fourth quarter of 2012 from UBS Global Asset
Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment
Risk aversion was elevated at times during the last three months of
2012. A number of issues triggered periodic flights to quality,
including signs of decelerating global growth and the impending US
"fiscal cliff." However, these setbacks proved to be only temporary in
nature, and robust risk appetite returned given investors' search for
yield in the low interest rate environment.
The US Federal Reserve Board (the “Fed”) continued to pursue its highly
accommodative monetary policy during the fourth quarter. At its last
meeting of the year, the Fed announced that it would continue making
open-ended purchases of $40 billion per month of agency mortgage-backed
securities, as well as purchasing $45 billion a month of longer-term
Treasuries. The Fed also said that it would keep the federal funds rate
on hold, "…as long as the unemployment rate remains above 6.5%,"
provided inflation was well-contained.
All told, the overall US bond market, as measured by the Barclays US
Aggregate Index, returned 0.22% during the three months ended December
31, 2012. Most US spread sectors (non-US Treasury fixed income
securities) generated positive results during this period, and generally
outperformed equal duration Treasuries. As was the case for much of the
year, risk taking was rewarded, as lower rated bonds generated superior
results. Among the best performers were emerging markets debt and high
yield corporate bonds. Investment grade corporate bonds, commercial
mortgage-backed securities (CMBS) and Treasury Inflation-Protected
Securities (TIPS) also posted strong returns.
As discussed, the emerging markets asset class generated strong results
during the fourth quarter. While US dollar-denominated emerging markets
debt, as measured by the JP Morgan Emerging Markets Bond Index Global
(EMBI Global), posted a 3.33% return over the period, local currency
emerging markets debt, as measured by the J.P. Morgan Government Bond
Index-Emerging Markets Global Diversified (GBI-EM Global Diversified),
posted an even stronger return of 4.13%.. The high yield bond market, as
measured by the Bank of America Merrill Lynch US Cash Pay High Yield
Constrained Index, returned 3.15% during the fourth quarter. High yield
bond prices were supported by generally robust demand, solid 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
During the fourth quarter of 2012, the Fund posted a net asset value
total return of 2.42% and a market price total return of 0.39%. On a net
asset value basis, the Fund outperformed its benchmark, the Strategic
Global Benchmark (the “Index”),1 which declined 0.06% for the
The Fund's spread sector exposures drove its outperformance during the
fourth quarter.2 In particular, the Fund's overweight
allocation to corporate credit (both investment grade and high yield
bonds) was the largest contributor to results. Overweights to CMBS and
mortgage-backed securities (MBS) were also additive for results, albeit
to lesser extents. Security selection, too, was positive for performance
during the quarter. Within investment grade credit, the Fund's holdings
in the financial subsector were the most beneficial to performance. We
also experienced positive security selection in CMBS, MBS and emerging
Overall, duration positioning contributed to results, when the Fund was
rewarded for having a shorter duration than its benchmark as US rates
moved higher during the quarter. Elsewhere, the Fund’s currency
positioning added to results. In particular, having a short to the
Japanese yen was beneficial, as newly elected Prime Minister Shinzo Abe
vowed to take "truly meaningful measures" to weaken the yen in order to
help boost Japan’s faltering economy. In addition, the Fund's overweight
to local currency emerging markets debt was a positive contributor.
In terms of the Fund's high yield exposure, overweights to financials,
pipelines, construction-related and technology sectors were beneficial
for results. Security selection in the gaming, services and
telecommunications sectors were also additive to performance.
With respect to the Fund's emerging markets debt exposure, our
overweight to local Brazilian debt contributed to performance during the
quarter. In particular, our longer-dated local
Brazilian debt with inflation protection generated solid results, as it
performed well given the decline in local yields and solid demand.
Overweights to higher yielding countries such as Belarus and the Ukraine
were rewarded during the last three months of the year.
We have a constructive outlook for the global economy, although pockets
of weakness remain. Despite fiscal cliff-related headwinds, we believe
that reasonable growth is sustainable in the US. We are less positive on
growth in Europe given ongoing issues related to the sovereign debt
crisis, high unemployment and extensive austerity measures. Japan also
faces continued challenges, as it has fallen back into a recession.
We have a generally positive view on the fixed income markets for 2013.
In particular, we like the prospects for the credits markets given
largely supportive fundamentals and supply/demand technicals. That said,
given the amount of spread compression since the financial crisis,
credit returns are not expected to be as robust in 2013. As was the case
in prior years, we anticipate periods of heightened risk aversion to
continue this year, as a number of macro issues remain unresolved. In
contrast to developed markets, we maintain a more constructive outlook
for emerging markets debt, and anticipate that, within that space, local
currencies may lead performance in 2013, but not without potential for
periods of heightened volatility.
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 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 Strategic Global benchmark is an unmanaged index
compiled by the advisor, constructed as follows: 67% Citigroup World
Government Bond 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 market bonds.