Global High Income Fund Inc. (the "Fund") (NYSE: GHI) is a non-diversified, closed-end management investment company seeking high current income and, secondarily, capital appreciation through investments primarily in securities of emerging markets debt issuers.
Fund Commentary for the third quarter 2012 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor
The emerging market asset class generated strong results during the third quarter. US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a return of 6.76% over the period. Local market investments (that is, investments denominated in the local emerging markets currency) also rallied during the quarter and returned 4.80%, based on the JP Morgan GBI-EM Global Diversified Index. Appreciating local market currencies relative to the US dollar was the main contributor in September, while declining yields drove returns in July and August.
Risk aversion, which was elevated at times during the second quarter, was largely replaced with robust risk appetite during the third quarter. Economic fundamentals in most developed countries remained weak and growth rates in emerging market countries generally decelerated during the third quarter. In addition, numerous macro issues remained, including the ongoing European sovereign debt crisis. However, these headwinds were largely overshadowed by expectations for additional quantitative easing by developed country central banks. New policy accommodation came to fruition in September, as the US Federal Reserve Board (Fed), the European Central Bank and the Bank of Japan all introduced new programs to help stimulate growth. Against this backdrop, risk assets sharply rallied, including emerging markets debt and local currencies. Of particular note, investment grade-rated emerging markets debt posted stronger results in July and August and lower rated emerging markets debt outperformed in September, as the "risk-on" environment gathered momentum.
For the third quarter of 2012, the Fund posted a net asset value total return of 7.40% and a market price total return of 9.18%. On a net asset value basis, the Fund outperformed its benchmark, the Global High Income Fund Index (the “Index”),
which returned 5.78% for the quarter.
Our allocation to US dollar-denominated bonds was beneficial for results. In contrast to weak results during the prior quarter, our allocations to higher risk countries like Argentina and Venezuela contributed to performance during the third quarter. The Fund's quasi-sovereign bonds in both the Middle East and Russia also boosted performance.
Our overweight to local currencies was also rewarded in September, when they rallied versus the US dollar following the Fed's unveiling of QE3, its latest quantitative easing initiative. In particular, allocations to the Indian rupee, the Nigerian naira and the Ghanaian cedi enhanced the Fund's results.
Detracting somewhat from performance during the quarter were the Fund's underweights to high quality, US dollar-denominated debt from Brazil, Mexico and Panama.