Managed High Yield Plus Fund Inc. – Fund Commentary

Managed High Yield Plus Fund Inc. – Fund Commentary | Bild: © diane39

Fund Commentary for the fourth quarter 2011 from UBS Global Asset Management (Americas) Inc. (?UBS Global AM?), the Fund?s investment manager

Market Review

In contrast to the third quarter of 2011, a period characterized by investors? flight to quality, risk appetite returned and the high yield market generated strong results during the fourth quarter. Most of the market's advance occurred in October, which contributed to the BofA Merrill Lynch US High Yield Cash Pay Constrained Index1 (the ?Index?) overall return of 6.17% for the quarter. Triggering the reversal in investor sentiment was a variety of economic data that exceeded expectations. In particular, unemployment edged lower, activity in the manufacturing sector expanded and there was some positive news in the housing market. Additionally, there were tentative hopes of an ultimate resolution to the European sovereign debt crisis. Over the last two months of the year, the Index was relatively flat, although volatility remained elevated given conflicting news coming out of Europe. After a 2.16% decline in November, the Index ended the year on a positive note, with a gain of 2.50% in December. As one would expect given the increase in risk appetite, lower-quality securities broadly outperformed higher-quality securities during the quarter, with CCC rated bonds significantly outperforming BB rated bonds.

Performance Review

For the fourth quarter of 2011, the Fund posted a net asset value total return of 7.89%, and a market price return of 13.2%. On a net asset value basis, the Fund outperformed its benchmark, the Index, which returned 6.17% for the quarter.

We began the third quarter with overweights versus the index in technology, energy, chemicals and gaming, as well as underweights to homebuilders, banks and thrifts and building materials. We ended the quarter with overweights to gaming, energy and chemicals and underweights to banks and thrifts, building materials and homebuilders.

Over the quarter, we broadly reduced the size of some of our positions as we sought to reduce risk. In particular we reduced overweights to technology and chemicals, and trimmed our exposure to health care. We added exposure to telecommunications and reduced the extent of the underweight to homebuilders. We also continued to reduce the magnitude of the overweight to insurance, while adding to banks, thereby reducing the extent of our underweight. We also increased our exposure to diversified financials. Other strategic adjustments included moving higher in quality, as we shifted from an underweight to neutral exposure in bonds rated BB while reducing the overweight to single-B rated bonds.

Over the quarter, both sector allocation and issue selection overall added positively to relative returns. Our sector allocation within industrials was additive, with gaming being a strong positive contributor. Conversely, allocations to building materials and chemicals detracted modestly. The Fund?s security selection in banking, media and packaging and electric utilities added positively. Issue selection within real estate, software and gaming detracted modestly from returns. From a ratings perspective, the Fund's relative underweight to higher-quality bonds added positively, as they underperformed over the quarter.

Outlook

Recent economic data has continued to be supportive of our central scenario for positive, albeit sub-trend economic growth in the US. That being said, weak housing and high unemployment are expected to constrain consumption and growth prospects. Looking ahead, we feel that a number of macro uncertainties, including global growth prospects and the ongoing European sovereign debt crisis, will continue to dominate investor sentiment and trigger periods of heightened volatility.

Turning to the high yield market, credit fundamentals remain broadly healthy, with corporate balance sheets in good shape and earnings often exceeding expectations. In addition, companies have been able to manage their liquidity profiles and refinance their debt at attractive rates, with net leverage at manageable levels. We also feel that current high yield spreads are attractive and provide a sufficient cushion should defaults rise from their current levels, which remain below historical averages.

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 The BofA Merrill Lynch US High Yield Cash Pay Constrained Index is an unmanaged index of publicly placed non-convertible, coupon-bearing US dollar denominated below investment grade corporate debt with a term to maturity of at least one year. The index is market 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.