NEW YORK--(BUSINESS WIRE)--
Global High Income Fund Inc. (the "Fund") (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 first quarter 2013 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor
The overall emerging markets debt asset class performed poorly during the first quarter as a whole. Although the year got off to a strong start, as robust demand in early January caused emerging market spreads1 to tighten, this quickly reversed course and spreads subsequently widened significantly. This turnaround was triggered by a number of factors, including signs of moderating global growth, fears of contagion from Europe, rising US Treasury yields and falling commodity prices. In a reversal from 2012, US dollar-denominated emerging markets debt lagged its local market counterparts during the first quarter. US dollar-denominated emerging markets debt, as measured by the JP Morgan Emerging Markets Bond Index Global (EMBI Global), posted a -2.30% return over the three months, whereas local currency emerging markets debt, as measured by the JP Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified), posted a -0.13% return.
For the first quarter of 2013, the Fund posted a net asset value total return of -1.84%, and a market price total return of 0.34%. On a net asset value basis, the Fund underperformed its benchmark, the Global High Income Fund Index (the “Index”)2,which returned -1.21% for the quarter.
Overweight positions to a number of countries detracted from the Fund's performance during the quarter. For example, our overweight to Argentina was detrimental for results. During the fourth quarter of 2012, a US court ruled that Argentina could not discriminate between its creditors, in connection with a longstanding dispute between holdouts from Argentina’s 2001 sovereign default. Against this backdrop, Standard & Poor's cut the country’s credit rating to B-, from B; Moody’s lowered the country’s rating to B3 from B2; and Fitch placed the country’s B rating on Rating Watch Negative. Investor sentiment for Argentina's debt remained weak, as appeals in the court case have yet to be resolved. After a long period of outperformance, local Brazilian debt generated poor results, and our overweight was detrimental for returns. This turnaround was driven by inflationary pressures and expectations for the beginning of a rate hike cycle by its central bank. Elsewhere, selection of local currencies was a negative for performance. In particular, our overweights to the Korean won and Taiwan dollar were not rewarded, as they weakened given increased political risk and the weakening Japanese yen.
Conversely, an overweight to Indian local bonds was slightly beneficial for performance, as their yields declined during the quarter. An underweight to a number of Eastern European countries, including Serbia and Poland, contributed to results, as investor sentiment weakened given the banking crisis in Cyprus. Elsewhere, an underweight to Egypt was additive given its poor results, as was an overweight to the outperforming Sri Lankan rupee.
Overall, we have a positive outlook for emerging markets debt. Within the asset class, we believe that local currencies are likely to continue to outperform US dollar-denominated emerging markets debt in 2013. We expect to see emerging market growth rates remain stronger than those for developed market countries. In addition, we believe that the Federal Reserve Board, the Bank of Japan and the European Central Bank will continue pursuing their accommodative monetary policies. Conversely, many emerging market central banks appear closer to ending their easing cycles. In such an environment, the yields difference between local emerging and developed country bonds should remain stable or increase, which should be beneficial for local currencies. Finally, we maintain a neutral outlook for local bonds.
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.
1 “Spreads” refers to differences between the yields paid on US Treasury bonds and other types of debt, such as corporate or emerging market bonds.
2 Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% JP Morgan Emerging Markets Bond Index Global (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.
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