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

Market review

The overall US fixed income market posted a negative return during the second quarter. Treasury yields moved higher across the curve as economic data generally improved and expectations increased that the Federal Reserve Board (the "Fed") would institute its first rate hike in nearly a decade before the end of the year. All told, the yield on the two-year Treasury rose from 0.56% to 0.64%, whereas the yield on the 10-year Treasury moved from 1.94% to 2.35% during the second quarter. At its meeting that concluded on June 17, 2015, the Fed said "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

The US bond market, as measured by the Barclays US Aggregate Index, declined 1.68% during the second quarter.1 Most US spread sectors also posted negative total returns during the period, as they were impacted by rising Treasury yields and periods of investor risk aversion.2 For the quarter, the BofA Merrill Lynch US High Yield Cash Pay Constrained Index (the “Index”) declined 0.03%.3 From a ratings perspective, B-rated high yield debt generated the best results, as it gained 0.49% for the quarter. Elsewhere, BB-rated and CCC-rated securities in the Index returned -0.36% and -0.31%, respectively.4

Performance review

For the second quarter of 2015, the Fund posted a net asset value total return of -0.46% and a market price total return of -4.72%. On a net asset value basis, the Fund underperformed the Index, which, as previously stated, declined 0.03% for the quarter.

The Fund’s security selection in the services, telecommunication, and banks & thrifts sectors detracted the most from performance during the quarter. The overall services sector generated weak results during the period. Likewise, telecommunication lagged the Index, partially due to expectations for a weaker fundamental backdrop in the coming quarters and the potential for new equity issuance in the sector. Within banks & thrifts, the Fund's longer-duration securities were negatively impacted by rising interest rates. Finally, the use of leverage was a drag on the Fund's results given negative performance from the overall high yield market.

On the upside, the Fund's security selection in the energy and health care sectors, along with an underweight to the metals & mining sectors, were the largest contributors to performance during the quarter. While oil prices fluctuated, they moved higher for the quarter as a whole, which supported the Fund's holdings in the energy sector. The Fund's health care holdings performed relatively well, especially during the high yield market's selloff in June, given the defensive nature of the sector. An underweight to metals & mining was rewarded as the sector continued to be negatively impacted by overcapacity and moderating demand from China.

In terms of changes to the portfolio during the quarter, the most meaningful adjustment was reducing its allocation to the banks & thrifts sector.

Outlook

We have recently sought to maintain a broadly neutral stance in the portfolio from a beta, or market risk, perspective versus the benchmark, with active risk primarily driven by the bottom-up views of our credit analyst team. Our view remains that economic growth is sufficient to support the high yield market. High yield issuers are benefiting from low borrowing costs and have used much of the proceeds from new issues to extend out their debt maturity profiles. While we have seen a marginal deterioration in fundamentals, we do not expect this to become material. These factors support our outlook for defaults being well below long-run average levels.

 
Portfolio statistics as of June 30, 20155
 
Top ten corporate bonds, including coupon and maturity   Percentage of total portfolio assets
International Lease Finance Corp., 7.125%, 09/01/18   1.1%
SquareTwo Financial Corp., 11.625%, 04/01/17   1.0
First Data Corp., 12.625%, 01/15/21   1.0
Pacific Drilling SA, 7.250%, 12/01/17   0.9
DISH DBS Corp., 7.875%, 09/01/19   0.9
Sabine Pass Liquefaction LLC, 5.625%, 02/01/21   0.8
Sprint Corp., 7.250%, 09/15/21   0.8
Intelsat Jackson Holdings SA, 7.250%, 10/15/20   0.8
Ineos Group Holdings PLC 6.125%, 08/15/18   0.8
NRG Energy, Inc. 6.250%, 07/15/22   0.7
     

Top five industries

  

Percentage of total portfolio assets

Energy - exploration & production   6.7%
Media - cable & satellite TV   6.3
Banking   4.5
Support - services   4.4
Consumer/commercial/lease financing   4.0
     
Credit quality6   Percentage of total portfolio assets
BB- or higher   49.2%
B   37.1
CCC+ and lower   8.5
Cash equivalents   3.7
Not Rated   1.5
Total   100.0
     
Characteristics    
Net asset value per share7   $2.12
Market price per share7   $1.79
Weighted average life   5.60 yrs
Weighted average life to maturity   6.66 yrs
Duration8   4.41 yrs
Duration–leverage adjusted8   6.25 yrs
Leverage9   29.48%

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 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.

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.

©UBS 2015. All rights reserved.

The key symbol and UBS are among the registered and unregistered trademarks of UBS

 
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. The index is not leveraged. Investors should note that indices do not reflect the deduction of fees and expenses.
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.
4

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.

5 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.