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 2012 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment manager
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.
The high yield bond market posted strong results during the quarter, with the Bank of America Merrill Lynch US Cash Pay High Yield Constrained Index returning 3.15%. 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 segment.
For the fourth quarter of 2012, the Fund posted a net asset value total return of 3.89%, and a market price return of -1.16%. On a net asset value basis, the Fund outperformed its benchmark, the BofA Merrill Lynch US High Yield Cash Pay Constrained Index
(the “Index”), which returned 3.15% for the quarter.
Spread management contributed to performance during the quarter,
particularly our overweights to cable television, insurance and banking. Security selection in the gaming, services, technology and telecommunications sectors were also additive to performance. The portfolio continued to use leverage during the quarter; this was beneficial 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 building materials was a drag on results, as there were signs of improvement in the housing market following a lengthy decline.
A number of changes were made to the portfolio during the quarter. We slightly increased the Fund's allocation to bonds rated BB, BBB and above. In contrast, we marginally decreased the Fund's exposure to lower quality bonds rated CCC and below. From a sector perspective, we increased the Fund's exposure to banks and thrifts, cable television and energy. In contrast, we reduced our allocation to steel, diversified media, technology and telecommunications.