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

Market review

After a modest advance in July, the emerging markets debt asset class produced weak results as the quarter progressed. This turnaround was triggered by weaker growth in China, falling commodity prices and several geopolitical issues. All told, the J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) declined 2.04% during the quarter.1 Local currency emerging markets debt, as measured by the J.P. Morgan Government Bond Index–Emerging Markets Global Diversified (GBI–EM Global Diversified), declined 10.54% during the quarter.2

Performance review

For the third quarter of 2015, the Fund posted a net asset value total return of -7.00% and a market price total return of -6.62%. On a net asset value basis, the Fund underperformed its benchmark, the Global High Income Fund Index (the “Index”), which returned -6.35% for the quarter.3

During the quarter, an underweight to Ukraine was negative for performance. While the country's economic backdrop remains extremely weak and debt restructuring is under way, investor sentiment for Ukraine improved and its debt rallied in August. An overweight to Brazilian US dollar-denominated quasi-sovereigns detracted from performance.4 Brazil's economic fundamentals weakened further during the quarter, leading to downgrades by two of the three major rating agencies. Overweights to certain oil-producing countries, such as Indonesia and Nigeria, also detracted from results, as they were negatively impacted by the falling price of oil.

The Fund's underweight to Brazilian local debt and a short duration in Brazil were beneficial for performance. Our tactical positioning in the Ghanaian cedi also aided performance. When the quarter began, we had an overweight to the Ghanaian cedi, and we eliminated this position in late July. The timing of this transaction was additive for results. Elsewhere, underweights to both Turkish US dollar-denominated and local debt enhanced the Fund's returns, given their weak performance. Finally, underweights to several Latin American countries—including Uruguay, Chile and Columbia—contributed to returns.

Several changes were made to the portfolio during the quarter. In addition to the previously discussed elimination of our Ghana currency position, in July we moved from an overweight to an underweight in Brazilian local debt. Elsewhere, we pared the Fund's allocation to US dollar-denominated debt in a number of countries.

Outlook

We maintain our cautious outlook on the emerging markets asset class. Growth in many developing countries remains challenged. In addition, the US Federal Reserve's decision to not raise interest rates at its September meeting has led to concerns regarding the health of the US economy. Against this backdrop, the demand for commodities remains relatively lackluster, which is negatively affecting the economic fundamentals of many developing countries. Emerging markets debt spreads are wider than their historical average and appear to be pricing in a negative scenario. Should there be a positive economic surprise, it may lead to some spread narrowing. Within the emerging markets asset class, we currently maintain our preference for US dollar-denominated debt over local debt.

Note regarding material event subsequent to quarterly commentary period: Based upon the recommendation of UBS Asset Management (Americas) Inc., the Fund’s investment advisor, 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 the Fund’s 2016 annual meeting of shareholders, which is expected to be held in February 2016. If the shareholders approve of 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).

 

Portfolio statistics as of September 30, 20155

 

 

Top ten countries (bond holdings only)6

   Percentage of net assets (%)
Indonesia   8.1
Mexico   7.8
Turkey   7.4
Brazil   7.0
Russia   6.0
Poland   5.7
South Africa   4.9
Malaysia   4.9
Thailand   4.4
Colombia   3.3
Total   59.5
 

Top ten currency exposures (includes all securities and other instruments)7

  

Percentage of net assets (%)

United States Dollar   55.7
Polish Zloty   5.5
Brazilian Real   4.5
Thai Baht   4.3
Malaysian Ringgit   4.0
Indonesian Rupiah   4.0
South African Rand   3.6
Turkish Lira   3.4
Mexican Peso   2.4
Colombian Peso   2.0
 

Credit quality8

  

Percentage of net assets (%)

AAA

 

0.1

AA   1.3
A   14.8
BBB   21.3
BB   18.4
B   8.1
CCC and below   1.9
Non-rated   32.1
Cash and other assets, less liabilities   2.0
Total   100.0
 

Characteristics

    
Net asset value per share9   $8.98
Market price per share9   $7.72
Duration10   5.75 yrs
Weighted average maturity   7.38 yrs
 

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 and the risks associated with investing in the securities of issuers in emerging market countries. The value of the Fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad, and due to decreases in foreign currency values relative to the US dollar. Investments in emerging market issuers may decline in value because of unfavorable government actions, greater risks of political instability or the absence of accurate information about emerging market issuers. 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 J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) is an unmanaged index which is designed to track total returns for US dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans and Eurobonds. Investors should note that indices do not reflect the deduction of fees and expenses.
2 The J.P. Morgan Government Bond Index–Emerging Markets Global Diversified (GBI–EM) is an unmanaged index which is designed to track the total returns for local currency debt instruments issued by emerging market governments.
3 Global High Income Fund Index is an unmanaged index compiled by the advisor, currently constructed as follows: 50% JP Morgan Emerging Markets Bond Index (EMBI Global) and 50% JP 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.
4 Quasi-sovereign bonds are securities issued by entities supported by the local government.
5 The Fund’s portfolio is actively managed, and its portfolio composition will vary over time.
6 Excludes exposures obtained via derivatives (e.g., swaps).
7 Forward foreign currency contracts are reflected at unrealized appreciation/depreciation; this may not align with the risk exposure described in the portfolio commentary section which reflects forward foreign currency contracts based on contract notional amount. As of the most recent period-end, September 30, 2015, the Fund maintained a risk exposure to non-US dollar currencies equal to approximately 49% of the Fund.
8

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. Rating reflected represents S&P individual debt issue credit rating. While S&P may provide a credit rating for a bond issuer (e.g., a specific company or country); certain issues, such as some sovereign debt, may not be covered or rated and, therefore, are reflected as non-rated for the purposes of this table. 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.

9 Net asset value (NAV) and market price will fluctuate.
10

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.