Global High Income Fund Inc. – Fund Commentary and Portfolio Statistics

NEW YORK--(BUSINESS WIRE)--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 second quarter 2014 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor

Market Review

The emerging markets debt asset class was among the best-performing segments of the bond market during the quarter. The segment benefited from strong investor demand, declining US Treasury yields and some signs of stabilization in China's economy. As measured by the J.P. Morgan Emerging Markets Bond Index Global (EMBI Global), US dollar-denominated debt posted a 5.43% return over the three months, whereas local currency emerging markets debt, as measured by the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM Global Diversified), posted a 4.02% return during the same time period.

Performance review

For the second quarter of 2014, the Fund posted a net asset value total return of 4.89%, and a market price total return of 7.04%. On a net asset value basis, the Fund outperformed its benchmark, the Global High Income Fund Index (the “Index”)¹, which returned 4.72% for the quarter.

The Fund posted a positive return for the second quarter, slightly beating its benchmark. An overweight in emerging market local currencies versus US dollar-denominated debt was not beneficial as the latter outperformed the former. From a country perspective, an overweight in Ghana local debt detracted from performance. An underweight to Mexican US dollar-denominated debt was not rewarded as it generated strong results during the quarter. Lastly, as interest rates generally declined over the period, the Fund's duration underweight detracted from performance.

On the upside, the Fund's overweight allocations to a number of higher beta (high risk) countries contributed to performance. In particular, our exposures to US dollar-denominated debt from Venezuela, Belarus, Ghana and Mongolia were positive for results as they benefited from spread² tightening and the declining rate environment in the US. The Fund's exposure to Brazilian and Indian local debt were additive to performance. After a period of weak results, Brazilian local debt performed well as yields declined along with US Treasuries. Investor sentiment for India improved following the results of its general election in May 2014.

Several changes were made to the portfolio during the quarter. We reduced the Fund's overweight exposure to Russian US dollar-denominated debt in June given spread tightening and continued geopolitical uncertainties. We also reduced the Fund's US dollar risk exposure during the quarter in order to take some profits after spread tightening.

Outlook

Many emerging markets countries are experiencing growth well above their major developed country counterparts, although the former are not immune to global developments. We expect to see emerging market growth rates moderate somewhat in 2014, based on lower exports to developed markets. However, advantages in terms of growth and relatively low fiscal deficits are favorable for debt dynamics in emerging markets countries on a longer-term horizon. That said, in the short-term we are less favorable on the asset class and feel that volatility within the asset class could remain elevated in the near term due to market uncertainty and investor risk aversion. But overall we continue to have a positive long-term outlook for emerging market investments. Solid fundamental data, stable reserves, a stronger fiscal situation and lower indebtedness are signs of such strengths, especially for emerging market sovereigns, quasi-sovereigns and currencies.

Portfolio statistics as of June 30, 2014^3
Top ten countries (bond holdings only)^4	Percentage of net assets
Brazil	11.6%
Turkey	8.2
Indonesia	7.6
Russia	7.4
Venezuela	5.5
Mexico	5.4
South Africa	4.1
Poland	4.0
Malaysia	3.8
Colombia	3.5
Total	60.0
Top ten currency exposures (includes all securities and other instruments)^5	Percentage of net assets
United States Dollar	51.6%
Brazilian Real	8.3
Indonesian Rupiah	4.0
Polish Zloty	3.9
Russian Ruble	3.5
Turkish Lira	3.3
South African Rand	3.2
Thai Baht	2.9
Euro	2.7
Malaysian Ringgit	2.6
Credit quality^6	Percentage of net assets
AA	0.9%
A	11.2
BBB	29.3
BB	8.9
B	12.5
Non-rated	34.6
Cash and other assets, less liabilities	2.6
Total	100.0
Characteristics
Net asset value per share^7	$11.71
Market price per share^7	$10.37
NAV distribution rate (DR)^7	5.99%
Market distribution rate (DR)^7	6.77%
Duration^8	5.9 yrs
Weighted average maturity	8.4 yrs

¹ 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.
² “Spread” refers to differences between the yield paid on US Treasury bonds and other types of debt, such as corporate or emerging market bonds.
³ The Fund’s portfolio is actively managed, and its portfolio composition will vary over time.
⁴ Excludes exposures obtained via derivatives (e.g., swaps).
⁵ 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, June 30, 2014, the Fund maintained a risk exposure to non-US dollar currencies equal to approximately 55% of the Fund.
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. 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 references to credit quality made in the commentary preceding the table 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), market price and distribution rates will fluctuate. NAV distribution rate (DR) is calculated by multiplying the current month’s regular monthly distribution by 12 and dividing by the month-end net asset value. Market distribution rate (DR) is calculated by multiplying the current month's regular monthly distribution by 12 and dividing by the month-end market price.
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.

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 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.

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