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 Market Review 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. Performance review 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”), 1 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. 2 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.
OutlookWe maintain our positive long-term outlook for the emerging markets debt asset class. However, we could see periods of volatility in the coming months, given the previously mentioned unresolved macro issues, slowing growth in China and the US “fiscal cliff” situation. Against this backdrop, we reduced certain holdings during the third quarter to capture profits and reduce the Fund's overall risk exposure. Should spreads widen from current levels, we would look to add to our risk exposure. 3 While we have maintained our local currency exposure, we have become more cautious in terms of local duration exposure given our outlook for 2013. Exceptions to this are our long duration exposures in Brazil, Mexico and India, based on country-specific events and opportunities. Looking ahead, we feel the gap between growth rates between emerging and developed counties will remain in place in 2013. We feel this should be supportive for the emerging markets debt asset class over the longer-term. 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 Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) and 50% J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified). Investors should note that indices do not reflect the deduction of fees and expenses. 2 Quasi-sovereign bonds are securities issued by entities supported by the local government. 3 “Spreads” refers to differences between the yield paid on US Treasury bonds and other types of debt, such as emerging markets bonds.