Global high income fund inc. – fund commentary
New york--(business wire)--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 second quarter 2011 from ubs global asset management (americas) inc. (“ubs global am”), the fund’s investment advisor market review during the second quarter of 2011, us dollar-denominated emerging markets debt posted a solid return and modestly outperformed its local markets’ counterpart (i.e, emerging markets debt denominated in the currency of the issuer). spreads on us dollar bonds widened over the period, but were not nearly as volatile as spreads on local market debt.1 higher commodity prices were not able to help emerging countries in terms of performance, and higher beta (i.e., higher risk) countries were negatively impacted by higher volatility, particularly in may, when the ”risk-off” trade began. local markets in particular were more volatile than in the past, as increasing risk and softer economic data in developed markets contributed to a selloff in emerging markets currencies. local yields trended down as it became more likely that inflation in emerging market countries is manageable and will not reach double-digits. meanwhile, emerging markets currencies depreciated as a result of increasing risk aversion in may. after a volatile first three months of the year, the second quarter brought some stability in the middle east and a price recovery for certain assets. however, renewed concerns regarding peripheral europe, increasing inflation and a slower-than-expected us economic outlook kept investors from taking additional risks. performance review for the second quarter of 2011, the fund posted a net asset value total return of 3.83%, and a market price total return of 13.20%. on a net asset value basis, the fund modestly underperformed its benchmark, the global high income fund index2 (the “index”), which returned 4.01% for the quarter. the fund maintained an underweight allocation versus its benchmark to us dollar-denominated bonds; however, its risk exposure was higher due to an overweight exposure to high beta countries (for example, venezuela and argentina). despite the fact that the spread markets experienced periods of volatility during the quarter, the fund's allocation to this portion of the market contributed to performance. the fund’s long duration positions in local markets were also beneficial as inflation fears receded and yield curves flattened. while we maintained an overweight allocation to local currencies during the quarter, the position was reduced in light of escalating risk aversion early in the period. also contributing to benchmark relative performance were our underweight positions in the serbian dinar and the indonesian rupiah in april, as they performed poorly. on the downside, security selection in several countries, including pakistan and belarus, as well as investments in russian quasi-sovereign bonds,3 was not rewarded during the second quarter. outlook we continue to have a positive long-term outlook for emerging markets investments given the strength and robustness of the underlying economies. volatility may continue in the near term due to uncertainties regarding a global recovery and the still-stretched fiscal situation in some european countries. we view us dollar-denominated bonds as fairly valued at current spreads, and expect only a limited return going forward. in contrast, we view local bonds and local currencies as the main performance drivers for the foreseeable future, as yield and growth gaps should remain in favor of emerging market countries. 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 “spreads” refers to differences between the yields paid on us treasury bonds and other types of debt, such as emerging market bonds. 2 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. 3 quasi-sovereign bonds are securities issued by entities supported by the local government.
