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 market debt issuers.
Fund Commentary for the third quarter 2010 from UBS Global Asset Management (Americas) Inc. ("UBS Global AM"), the Fund's investment advisor
Market Review
During the quarter, US dollar-denominated (USD) emerging markets (EM) bond performance was mainly driven by global economic factors. In July and August, renewed doubts about the sustainability of the US economic recovery led to a fairly substantial decline in US Treasury yields. While longer-term yields rose modestly higher in September, it was not enough to offset their earlier decline. Lower US Treasury yields supported the prices of USD-denominated EM bonds and were a significant driver of their overall performance. In addition, EM spreads were relatively stable during the quarter and only had a modest impact on performance. ("Spreads" refers to differences between the yields paid on US Treasury bonds and other types of debt, such as emerging market bonds.)
The widening gap between US Treasury and EM local market yields led to solid performance for local yield returns.1 In addition, EM currencies appreciated, as they benefited from a robust macro backdrop for their own economies as well as favorable spread levels relative to USD EM debt. Toward the end of the quarter, Eastern European currencies were supported by the renewed strength of the euro, and Asian currencies gained, due to increased rhetoric surrounding the appreciation of the Chinese yuan.
Performance Review
For the third quarter ended September 30, 2010, the Fund posted a net asset value total return of 10.75% and a market price total return of 20.83%. The Fund outperformed its benchmark, the Global High Income Fund Index,2 on a net asset value return basis for the quarter.
The largest contributors to the Fund's results came from its investments in local bonds and local currencies. From a regional perspective, an overweight exposure to Brazil and currency exposures in Mexico, Poland and certain Asian countries were beneficial for overall performance. As concerns regarding the sovereign debt crisis in Southern Europe moderated, spreads in Greece tightened from their elevated levels. This, in turn, helped the Fund's performance during the period.
Outlook
We continue to have a positive long-term outlook for emerging markets investments, given the strength of their underlying economies. Volatility may continue in the near term, due to uncertainties regarding a global recovery and the continued fiscal issues in a few European countries. Since we believe that US interest rates are near their lowest levels, we see USD-denominated bonds as fairly valued at current spread levels. In addition, we expect only a limited return from further spread tightening going forward. In contrast, local bonds and local currencies should be the main performance drivers for the foreseeable future, as yield and economic growth disparities are likely to remain favorable for EM 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. The Fund's net asset value ("NAV") returns assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. The Fund's market price returns 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 the sale of Fund shares.
1 We attribute local market performance to two components: (1) actual performance of local bonds (also referred to as "local yields"), and (2) actual currency performance relative to USD.
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.
Contacts:
UBS Global Asset Management Closed-End Funds Desk, 888-793-8637