Managed High Yield Plus Fund Inc. – Fund Commentary
03 August 2011 - 7:05AM
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 second quarter 2011 from UBS Global
Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s
investment manager
Market Review
The high yield market posted mixed results during the second
quarter of 2011, but ultimately produced a modest gain. High yield
prices moved sharply higher in April due to first-quarter corporate
profits that generally exceeded expectations and to robust investor
demand. The high yield market rose modestly in May, despite a
number of headwinds, including signs that economic growth was
decelerating and concerns regarding the European sovereign debt
crisis. However, fears that Greece may default on its debt
obligations and additional disappointing economic data triggered a
flight to quality in June, and the high yield market experienced
its first monthly decline since November 2010. From a ratings
perspective, lower-quality securities broadly underperformed
higher-quality securities during the quarter, with CCC-rated bonds
significantly lagging BB-rated bonds. From a sector perspective,
more defensive areas of the market outperformed their cyclical
counterparts.
Performance Review
For the second quarter of 2011, the Fund posted a net asset
value total return of 0.42%, and a market price return of 11.65%.
On a net asset value basis, the Fund underperformed its benchmark,
the BofA Merrill Lynch US High Yield Cash Pay Constrained Index1
(the “Index”), which returned 1.00% for the quarter.
During the second quarter, we maintained overweights versus the
Index to insurance, gaming, retail and technology. The Fund ended
the quarter with underweights to health care, metals and mining,
aerospace and building materials. In addition, from a
credit-quality positioning perspective, the Fund remained
underweight the BB-rating category, but to a lesser extent compared
to the first quarter of 2011. Corresponding overweights to B- and
CCC-rated bonds were also reduced during the quarter.
The Fund’s holdings in diversified financial services,
forestry/paper, insurance and gaming contributed positively to the
Fund’s relative performance versus the benchmark. However, this was
not enough to offset negative effects from investments in energy,
transportation and publishing/printing sectors. From a ratings
perspective, the Fund's underweight to higher-quality bonds
detracted as they outperformed over the quarter.
Outlook
Our central scenario continues to be one of moderate economic
growth, with weak housing and high unemployment expected to
constrain consumption and growth prospects. Sovereign debt issues
in peripheral Europe, softer economic data in the US and concerns
regarding the raising of the debt ceiling have added to market
volatility. In our view, this period of weaker economic data will
likely prove to be transitory rather than a signal of a structural
downturn for the economy. Credit fundamentals remain healthy, with
corporate balance sheets generally in good shape and companies able
to refinance debt at affordable rates. Consumer and commercial
lending are showing signs of growth. Current high yield spreads are
at levels that we believe provide a sufficient cushion for an
increase in defaults, which remain below average historical levels.
The current yield on the asset class remains attractive in an
environment of modest growth, low cash rates and low defaults. The
potential for significant volatility remains, however, given the
recent weaker economic data and continued uncertainty regarding
peripheral Europe.
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 BofA Merrill Lynch US High Yield Cash Pay Constrained
Index is an unmanaged index of publicly placed non-convertible,
coupon-bearing US dollar denominated below investment grade
corporate debt with a term to maturity of at least one year. The
index is market 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.
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