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Managed High Yield Plus Fund Inc. – Fund Commentary and Portfolio Statistics

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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 third quarter of 2014 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment manager

Market review

The fixed income market largely treaded water during the third quarter. However, there were periods of volatility over the three month period as investor sentiment was impacted by mixed global economic data, questions regarding future central bank monetary policy and an increasing number of geopolitical issues. The yield on the two-year Treasury rose from 0.47% to 0.58% over the quarter, as expectations for Federal Reserve Board (the “Fed”) rate hikes increased. In contrast, the yield on the 10-year Treasury declined slightly from 2.53% to 2.52%, partially driven by several periods of risk aversion that saw fixed income investors move to the relative safety of US Treasuries. As expected, the Fed announced at its meetings in July and September that it would further taper its purchases of longer-term Treasuries and agency mortgage-backed securities. In each case, the Fed stated that it planned to pare its purchases (quantitative easing) by a total of $10 billion per month. Quantitative easing concluded in October 2014. In its official statement following its September meeting, the Fed stated, “it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored.” All told, the overall US bond market, as measured by the Barclays US Aggregate Index,1 gained 0.17% during the third quarter.

Many US spread sectors2 posted negative returns during the third quarter. Spread sectors were impacted by the aforementioned issues driving investor sentiment. Treasury Inflation-Protected Securities (“TIPS”), high yield corporate bonds and emerging market debt generated weak results. For the quarter, the BofA Merrill Lynch US High Yield Cash Pay Constrained Index3 (the “Index”) declined 1.91%. From a ratings perspective, BB-rated high yield debt generated the best relative results, as they fell 1.34% for the quarter. Elsewhere B- and CCC-rated securities in the Index declined 1.85% and 3.41%, respectively.

Performance review

For the third quarter of 2014, the Fund posted a net asset value total return of -2.97% and a market price total return of -4.67%. On a net asset value basis, the Fund underperformed the Index, which, as previously stated, returned -1.91% for the quarter.

An overweight to the energy sector was among the largest detractors from performance, as the sector was negatively impacted by declining oil prices and softer global demand. Elsewhere, security selection within the banks/thrifts, food and pharmaceutical 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 security selection within the service sector. An underweight and security selection in the gaming sector was also beneficial, as was security selection within the telecommunication services sector.

There were no material changes to the portfolio during the quarter. However, we pared back the Fund’s allocation to banks/thrifts given changes in the composition of the Index.


We remain broadly positive on high yield as an asset class. We view recent volatility as being largely driven by a combination of heightened geopolitical tensions and market technicals in an environment of reduced liquidity. The market is also focused on the recent termination of quantitative easing by the Fed and the implications of an eventual increase in interest rates. However, we view the environment of improving-but subdued-economic growth, coupled with what remains of an accommodative interest rate policy and relatively sound credit fundamentals, as favorable for high yield bonds. The major risk to this view is that technical factors, driven by potential outflows from the asset class and a reduction in liquidity, could lead to further short-term volatility.

Throughout the third quarter, we sought to maintain a broadly neutral stance in the portfolio from a beta, or market risk, perspective versus the benchmark. We anticipate investment opportunities to continue to arise through our bottom-up issue selection and efforts to avoid issuers that are at risk of credit deterioration. From an industry perspective, our strategies’ overweights continue to include energy and cable TV, while portfolio sector underweights include metals and mining, and retail.

Portfolio statistics as of September 30, 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 1.1
Sabine Pass Liquefaction LLC, 5.625%, 02/01/2021 1.1
Hecla Mining Co., 6.875%, 05/01/2021 1.0
Midstates Petroleum Co., Inc., 10.750%, 10/01/2020 1.0
First Data Corp., 12.625%, 01/15/2021 1.0
Pacific Drilling SA, 5.375%, 06/01/2020 0.9
DISH DBS Corp., 7.875%, 09/01/2019 0.9
Intelsat Jackson Holdings SA, 7.250%, 10/15/2020 0.8
NRG Energy, Inc., 6.250%, 07/15/2022 0.8
Top five industries Percentage of total portfolio assets
Energy – exploration & production 9.6%
Cable & satellite TV (formerly, “Media-cable”) 6.5
Support – services 4.8
Gas distribution 4.4
Consumer/commercial/lease financing 4.1
Credit quality5 Percentage of total portfolio assets
BB- or higher 43.7%
B 45.1
CCC+ and lower 9.7
Cash equivalents 1.1
Not Rated 0.4
Total 100.0
Net asset value per share6 $2.22
Market price per share6 $1.99
Weighted average life 5.66 yrs
Weighted average life to maturity 7.05 yrs
Duration7 4.55 yrs
Duration-leverage adjusted7 6.36 yrs
Leverage8 28.47%
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 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 You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

(c)UBS 2014. All rights reserved.

The key symbol and UBS are among the registered and unregistered trademarks of UBS.

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