HYF Managed High Yield Plus Fund, Inc.

Managed High Yield Plus Fund Inc. (the “Fund”) (NYSE: HYF) is a closed-end management investment company seeking high income and secondarily, capital appreciation, primarily through investments in lower-rated, income-producing debt and related equity securities.

Fund Commentary for the third quarter of 2015 from UBS Asset Management (Americas) Inc. (“UBS AM”), the Fund’s investment manager

Market review

The overall US fixed income market posted a positive return during the third quarter of 2015. While US economic data generally improved, the Federal Reserve Board (the "Fed") kept rates on hold at its September meeting. In the Fed's official statement it said, "The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad." In her press conference following the meeting, Fed Chair Janet Yellen said that policy makers had decided to take “a little bit more time to evaluate the likely impacts” of recent market volatility on the US before raising interest rates. For the quarter as a whole, the yield on the two-year Treasury was unchanged at 0.64%, whereas the yield on the 10-year Treasury fell from 2.35% to 2.06% over the three-month period.

The overall US bond market, as measured by the Barclays US Aggregate Index (the "Index"), gained 1.23% during the third quarter of 2015.1 Most US investment grade spread sectors posted positive total returns during the period, whereas lower-quality securities, such as high yield corporate bonds, generated weak results.2 The high yield market was negatively impacted by concerns over the Chinese economy, uncertainty over monetary policy direction and the potential implications for global growth. In particular, the energy and metals & mining sectors declined sharply. For the quarter, the BofA Merrill Lynch US High Yield Cash Pay Constrained Index (the “Index”) declined 4.85%.3 From a ratings perspective, BB-rated, B-rated and CCC-rated high yield securities in the Index returned -3.16%, -5.66% and -7.79%, respectively.4

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1

 

The Barclays US Aggregate Index is an unmanaged broad-based index designed to measure the US dollar-denominated, investment grade, taxable bond market. The index includes bonds from the Treasury, government-related, corporate, mortgage-backed, asset-backed and commercial mortgage-backed sectors.

2

A spread sector refers to non-government fixed income sectors, such as investment grade or high yield bonds, commercial mortgage-backed securities (CMBS), etc.

3

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

 

Performance review

For the third quarter of 2015, the Fund posted a net asset value total return of -7.16% and a market price total return of -7.93%. On a net asset value basis, the Fund underperformed the Index, which, as previously stated, declined 4.85% for the quarter.

The Fund’s positioning in the energy sector was the largest detractor from results during the quarter. Security selection in the telecommunications sector was another meaningful detractor from performance. On the upside, the Fund's positioning in the health care sector was the most notable contributor to performance. An overweight and security selection in the building materials sector was also beneficial for results. The use of leverage further amplified weak market performance during the quarter.

There were several changes to the portfolio during the quarter. In particular, we reduced our overweight allocations to the energy and health care sectors. In contrast, we increased the Fund's overweights to the banks & thrifts, telecommunications, and autos sectors.

Outlook

High yield issuers continue to benefit from low borrowing costs and have used much of the proceeds from new issues to extend out their debt maturity profiles in recent months. However, despite issuers still being active in refinancing in the primary markets, we have noticed a recent slowdown given the uptick in market volatility. We now see a noticeable weakening trend in credit fundamentals, but our analysts continue to monitor the situation closely, especially in light of the quarterly results season. Despite the more negative trend, we continue to view the outlook for defaults as being well below long-run average levels, with the exception of the energy sector, where prolonged low oil prices may lead to an uptick in defaults. We are conscious of elevated trading costs in the current market environment.

Note regarding material event subsequent to quarterly commentary period: As previously announced in a press release issued on October 13, 2015, based upon the recommendation of UBS Asset Management (Americas) Inc., the Fund’s investment manager, the Fund's Board of Directors determined that liquidation and dissolution of the Fund is in the best interests of the Fund's shareholders. A proposed plan of liquidation will be submitted for the approval of the Fund’s shareholders at a special meeting of shareholders, which is expected to be held in April 2016. If the shareholders approve the proposed plan, the liquidation and dissolution of the Fund will take place as soon as reasonably practicable, but in no event later than December 31, 2016 (absent unforeseen circumstances).

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Credit ratings range from AAA, being the highest, to D, being the lowest when based on ratings assigned by Standard & Poor's Financial Services LLC, a part of McGraw-Hill Financial ("S&P"). Ratings of BBB or higher are considered to be investment grade quality. Further information regarding S&P's rating methodology may be found on its website at www.standardandpoors.com.

 

Portfolio statistics as of September 30, 20155     Top ten corporate bonds, including coupon and maturity     Percentage of total portfolio assets (%) International Lease Finance Corp., 7.125%, 09/01/18     1.2 First Data Corp., 12.625%, 01/15/21     1.0 SquareTwo Financial Corp., 11.625%, 04/01/17     0.9 SunGard Data Systems, Inc., 7.625%, due 11/15/20     0.9 DISH DBS Corp., 7.875%, 09/01/19     0.9 Wind Acquisition Finance SA, 7.375%, due 04/23/21     0.8 Numericable-SFR, 6.250%, due 05/15/24     0.8 Intelsat Jackson Holdings SA, 7.250%, 10/15/20     0.8 Ineos Group Holdings PLC , 6.125%, 08/15/18     0.8 iHeartCommunications, Inc., 11.250%, due 03/01/21     0.8     Top five industries     Percentage of total portfolio assets (%) Media-cable & satellite TV     6.7 Banking     5.8 Energy-exploration & production     5.0 Support-services     4.3 Software/services     4.2     Credit quality6     Percentage of total portfolio assets (%) BB- or higher     49.8 B     38.9 CCC+ and lower     7.8 Cash equivalents     2.9 Not Rated     0.6 Total     100.0     Characteristics       Net asset value per share7     $1.93 Market price per share7     $1.609 Weighted average life     5.71 yrs Weighted average life to maturity     6.39 yrs Duration8     4.38 yrs Duration–leverage adjusted8     6.23 yrs Leverage9     29.70%  

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The Fund’s portfolio is actively managed, and its portfolio composition will vary over time.

6

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. 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 any references to credit quality made in the commentary preceding the table may reflect ratings based on multiple providers (not just S&P) and thus may not align with the data represented in this table.

7

Net asset value (NAV) and market price will fluctuate.

8

Duration is a measure of price sensitivity of a fixed income investment or portfolio (expressed as % change in price) to a 1 percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features. Duration is unadjusted for leverage. Duration-leverage adjusted is estimated by dividing duration by an amount equal to 1 minus the leverage percentage.

9

As a percentage of adjusted assets. Adjusted net assets equals total assets minus liabilities, excluding liabilities for borrowed money.

 

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 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, the greater credit risks inherent in investing primarily in lower-rated, higher-yielding bonds as well as the increased risk of using leverage (that is, borrowing money to invest in additional portfolio securities). 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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UBS Asset ManagementClosed-End Funds Desk: 888-793 8637ubs.com