Global High Income Fund Inc. – Fund Commentary and Portfolio Statistics
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 fourth quarter 2014 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor
After posting a positive return in October and treading water in November, the emerging markets debt asset class fell sharply in December. This was partially due to sharply falling oil and other commodity prices, global growth concerns and the rising US dollar. All told, the J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) declined 1.65% over the fourth quarter, whereas local currency emerging markets debt, as measured by the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified), posted a loss of 5.71% during the same time period.
For the fourth quarter of 2014, the Fund posted a net asset value total return of -5.25% and a market price total return of -7.08%. On a net asset value basis, the Fund underperformed its benchmark, the Global High Income Fund Index (the “Index”), which declined 3.69% for the quarter.1
The largest detractor from the Fund’s performance during the quarter was its overweight to Russian sovereign and quasi-sovereign bonds. Investor sentiment for Russia further weakened during the fourth quarter, as oil prices declined and it appeared more likely that Russia would fall into a recession. Ongoing geopolitical issues surrounding the country also weighed on the Fund’s holdings. Small overweights to countries that were tied to the Russian ruble, including Belarus and Kazakhstan, also negatively impacted the Fund’s performance. Elsewhere, an overweight to Venezuelan US dollar-denominated debt detracted from results. Venezuela performed poorly due to declining oil prices, coupled with political and economic uncertainties.
An underweight to Ukrainian US dollar-denominated debt was beneficial for results. The country’s economy deteriorated further during the fourth quarter, and Ukraine needs long-term financial support to service its debt obligations. Modestly contributing to Index-relative results were the Fund’s underweights to Argentinian US dollar-denominated debt and the Russian ruble, along with an overweight to local Indian debt.
Several changes were made to the portfolio during the quarter. We reduced the Fund’s local currency position and moved from an overweight to an underweight versus the Index. Given the elevated volatility in the asset class in December, we increased the Fund’s exposure to US dollar-denominated bonds that had sold off significantly. While this was challenging given the lack of liquidity in the marketplace around the holidays, we were able to purchase what were believed to be attractively valued securities in countries such as Turkey, Indonesia and Kenya.
We continue to have a cautious short-term outlook for the emerging markets debt asset class. Sharply falling oil prices have already put severe financial strains on exporters, such as Russia and Venezuela. Declining prices for other commodities has negatively impacted a number of other emerging markets countries as well. While these lower prices should support many developed nations, it is not clear if or when this could ultimately benefit emerging markets countries. In addition, moderating economic data from China is a concern. Against this backdrop, we believe US dollar-denominated debt could continue outperforming local currency debt in the coming months. On the upside for the emerging markets asset class, inflation is relatively benign overall. As such, this should give most emerging markets central banks the ability to delay raising rates in the near-term.
Portfolio statistics as of December 31, 20142
Top ten countries (bond holdings only)3
|Percentage of net assets|
|Top ten currency exposures (includes all securities and other instruments)4||
Percentage of net assets
|United States Dollar||54.2%|
|South African Rand||3.2|
|Credit quality5||Percentage of net assets|
|CCC and Below||3.1|
|Cash and other assets, less liabilities||2.4|
|Net asset value per share6||$10.35|
|Market price per share6||$8.82|
|Weighted average maturity||8.59 yrs|
|1||Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% JP Morgan Emerging Markets Bond Index (EMBI Global) and 50% JP 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||The Fund’s portfolio is actively managed, and its portfolio composition will vary over time.|
|3||Excludes exposures obtained via derivatives (e.g., swaps).|
|4||Forward foreign currency contracts are reflected at unrealized appreciation/depreciation; this may not align with the risk exposure described in the portfolio commentary section which reflects forward foreign currency contracts based on contract notional amount. As of the most recent period end, December 31, 2014, the Fund maintained a risk exposure to non-US dollar currencies equal to approximately 49% of the Fund.|
|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. Rating reflected represents S&P individual debt issue credit rating. While S&P may provide a credit rating for a bond issuer (e.g., a specific company or country); certain issues, such as some sovereign debt, may not be covered or rated and therefore are reflected as non-rated for the purposes of this table. 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 www.standardandpoors.com. Please note that references to credit quality made in the commentary preceding the table 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 one percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features.|
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 and the risks associated with investing in the securities of issuers in emerging market countries. The value of the Fund’s investments in foreign securities may fall due to adverse political, social and economic developments abroad and due to decreases in foreign currency values relative to the US dollar. Investments in emerging market issuers may decline in value because of unfavorable government actions, greater risks of political instability or the absence of accurate information about emerging market issuers. 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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