Fund Commentary for the fourth quarter 2013 from
The global fixed income market finished a challenging year by posting generally weak results during the fourth quarter. Both short- and long-term US Treasury yields moved higher, as economic data was generally solid. Also driving yields higher was the
Despite rising interest rates, most spread sectors1 generated modest gains during the fourth quarter. The quarter began on a positive note, as investor sentiment remained positive following the Fed's surprise decision in September to delay tapering its asset purchase program. However, a portion of those gains were given back in November and December, as economic data often exceeded expectations, and the Fed announced that it would start paring its asset purchases. As was the case for the year as a whole, one of the best performing sectors during the fourth quarter was high yield debt, as the BofA Merrill Lynch US High Yield Cash Pay Constrained Index2 (the “Index”) returned 3.47%. From a ratings perspective, higher-quality rated high yield debt broadly underperformed lower-quality bonds, with the BB- and B-rated segments lagging the CCC and below-rated segments. Supporting the high yield market were continued solid corporate fundamentals, low defaults and overall solid demand.
For the fourth quarter of 2013, the Fund posted a net asset value total return of 4.79% and a market price return of 3.74%. The Fund outperformed the Index, which, as previously stated, returned 3.47% for the quarter.
Within spread management, security selection was the main contributor to performance during the quarter, particularly our holdings in the energy, telecommunications and diversified financial services sectors. However, this was modestly offset by our holdings in the utilities, chemicals and healthcare sectors. Sector positioning did not materially impact performance during the quarter.
There were no significant adjustments to the portfolio during the quarter, other than the small reduction of leverage. Market liquidity and supply dwindled as we approached the holidays, and it was difficult to allocate cash into bonds. We expect to re-deploy that leverage in early 2014 or on potential market weakness.
We expect to see the US economic expansion continue in 2014, although the pace could remain somewhat below its historical average. While the Fed began to modestly scale back its monthly asset purchases in
Portfolio statistics as of
|Top ten corporate bonds, including coupon and maturity||Percentage of total portfolio assets|
Midstates Petroleum Co., Inc., 10.750%, ||1.0|
Pacific Drilling SA, 5.375%, ||0.9|
Ally Financial, Inc., 8.000%, ||0.8|
Frontier Communications Corp., 8.500%, ||0.7|
Top five industries
Percentage of total portfolio assets
|Energy - exploration & production||10.6%|
|Telecom - integrated/services||5.8|
|Support - services||5.5|
|Media - cable||5.3|
|Credit quality4||Percentage of total portfolio assets|
|BB- or higher||44.4%|
|CCC+ and lower||11.8|
|Net asset value per share5|
|Market price per share5|
|Weighted average life||5.11 yrs|
|Weighted average life to maturity||7.21 yrs|
|Duration-leverage adjusted6||5.85 yrs|
A spread sector refers to non-government fixed income sectors,
such as high yield bonds, commercial mortgage-backed securities
(CMBS) and investment grade corporate bonds. The spread measures
the difference between the yields paid on non-government
securities versus those paid on government securities.
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
|The Fund's portfolio is actively managed, and its portfolio composition will vary over time.|
Credit quality ratings shown in the table are based on those
assigned by Standard & Poor’s
|5||Net asset value (NAV), market price and yields will fluctuate. NAV yield is calculated by multiplying the current month’s dividend by|
|12 and dividing by the month-end net asset value. Market yield is calculated by multiplying the current month’s dividend by 12 and dividing by the month-end market price.|
|6||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 one minus the leverage percentage.|
As a percentage of adjusted assets. Adjusted net assets equals
total assets minus liabilities, excluding liabilities for borrowed
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.
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.
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