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 of 2014 from UBS
Global Asset Management (Americas) Inc. (“UBS Global AM”), the
Fund’s investment manager
Market review
The overall US fixed income market moved higher during the
fourth quarter. Despite improving growth and the end of the Federal
Reserve Board’s (the “Fed”) asset purchase program, intermediate-
and long-term yields declined. In contrast, short-term rates
increased given expectations for Fed rate hikes in 2015. All told,
the yield on the two-year Treasury rose from 0.58% to 0.67%,
whereas the yield on the 10-year Treasury fell from 2.52% to 2.17%
during the fourth quarter. In its official statement following its
last meeting of the year in December, the Fed stated: “Based on its
current assessment, the Committee judges that it can be patient in
beginning to normalize the stance of monetary policy.” The overall
US bond market, as measured by the Barclays US Aggregate Index,
returned 1.79% during the fourth quarter, lifting its 2014 gain to
5.97%.1
Many US spread sectors posted positive total returns during the
fourth quarter.2 Among them, long-term investment grade corporate
bonds posted the strongest total returns, supported by declining
yields over the quarter. In contrast, high yield corporate bonds
generated weak results. For the quarter, the BofA Merrill Lynch US
High Yield Cash Pay Constrained Index (the “Index”) declined
1.04%.3 From a ratings perspective, BB-rated high yield debt
generated the best relative results, as it gained 0.71% for the
quarter. Elsewhere B-rated and CCC-rated securities in the Index
declined 1.66% and 5.43%, respectively.
Performance review
For the fourth quarter of 2014, the Fund posted a net asset
value total return of -2.27% and a market price total return of
-7.65%. On a net asset value basis, the Fund underperformed the
Index, which, as previously stated, declined 1.04% for the
quarter.
The Fund’s exposure to the energy sector was the largest
detractor from performance during the quarter. Oil prices started
to decline over the summer as the global economic landscape showed
signs of slowing, which caused oil demand to weaken. At the same
time, oil supply was greater than anticipated, largely due to
production from North America. All told, the price of oil fell 46%
in 2014. Against this backdrop, the energy sector of the Index
declined 10.61% during the fourth quarter and 7.34% in 2014.
Elsewhere, the Fund’s exposures to the telecommunications and
broadcasting sectors were negative for performance. Finally, the
use of leverage was a drag on returns during the period given weak
performance from the overall high yield market.
The largest contributor to performance during the quarter was
the Fund's allocation to the health care sector. Security selection
and having an overweight to this defensive area of the high yield
market was helpful. The sector outperformed the Index, as
volatility increased during the fourth quarter. The Fund’s
underweight to the weak performing metals and mining sector was
beneficial for results. Elsewhere, security selection in the
services sector contributed to performance.
There were no material changes to the portfolio during the
quarter.
Outlook
The US high yield asset class is currently a bifurcated market,
with the energy sector trading at elevated spread levels. Within
the portfolio, we continue to overweight the energy sector in light
of our expectation for supply-driven stability and the eventual
recovery of the price of oil. Within energy, we maintain a diverse
exposure to many different business models and risk profiles.
Beyond oil market fundamentals, we are keeping a careful eye on
“falling angels” from the investment grade space (that is, formerly
higher rated bonds that were downgraded). Finally, given the
fragile state of the high yield sector, large inflows of bond
supply would be difficult to manage in the current environment.
Portfolio statistics as of December 31,
20144
Top ten corporate bonds, including coupon and
maturity Percentage of total portfolio assets
SquareTwo Financial Corp., 11.625%, 04/01/2017 1.4 %
International Lease Finance Corp., 7.125%, 09/01/2018 1.2
Sabine Pass Liquefaction LLC, 5.625%, 02/01/2021 1.1
First Data Corp., 12.625%, 01/15/2021 1.0
Hecla Mining Co., 6.875%, 05/01/2021 1.0 DISH DBS
Corp., 7.875%, 09/01/2019 0.9 Intelsat Jackson
Holdings SA, 7.250%, 10/15/2020 0.8 Pacific Drilling
SA, 5.375%, 06/01/2020 0.8 Westmoreland Coal
Co./Westmoreland Partners
10.750%, 02/01/18
0.7 Windstream Corp. 7.750%, due 10/01/21 0.7
Top five industries Percentage of total
portfolio assets Energy - exploration & production
7.2 % Media - cable & satellite TV 6.5
Support - services 4.9 Gas distribution
4.4 Consumer/commercial/lease financing
4.4
Credit quality5
Percentage of total portfolio assets BB- or higher
44.1 % B 44.1 CCC+ and lower
7.7 Cash equivalents 3.6 Not
Rated 0.5
Total
100.0 Characteristics Net
asset value per share6 $ 2.13 Market price per share6
$ 1.80 Weighted average life 5.59 yrs Weighted
average life to maturity 6.74 yrs Duration7 4.39 yrs
Duration-leverage adjusted7 6.21 yrs
Leverage8
29.31 %
1
The Barclays US Aggregate Index is an
unmanaged broad-based index designed to measure the US
dollar-denominated, investment grade, taxable bond market. The
index includes bonds from the Treasury, government-related,
corporate, mortgage-backed, asset-backed and commercial
mortgage-backed sectors.
2
A spread sector refers to non-government
fixed income sectors, such as investment grade or high yield bonds,
commercial mortgage-backed securities (CMBS), etc.
3
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.
4
The Fund's portfolio is actively managed,
and its portfolio composition will vary over time.
5
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 any
references to credit quality made in the commentary preceding the
table may reflect ratings based on multiple providers (not just
S&P) and thus may not align with the data represented in this
table.
6
Net asset value (NAV) and market price
will fluctuate.
7
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 1 minus the leverage percentage.
8
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.
©UBS 2015. All rights reserved.
The key symbol and UBS are among the registered and unregistered
trademarks of UBS
UBS Global Asset ManagementClosed-End Funds Desk: 888-793
8637ubs.com
Managed High Yield Plus Fund, Inc. (NYSE:HYF)
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