NEW YORK -- (Business Wire)
Fort Dearborn Income Securities, Inc. (the "Fund") (NYSE: FDI) is a
closed-end bond fund managed by UBS Global Asset Management (Americas)
Inc. The Fund invests principally in investment grade, long-term fixed
income debt securities. The primary objective of the Fund is to provide
its shareholders with:
A stable stream of current income consistent with external interest
rate conditions; and
A total return over time that is above what they could receive by
investing individually in the investment grade and long-term maturity
sectors of the bond market.
Fund Commentary for the fourth quarter 2012 from UBS Global Asset
Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment
Risk aversion was elevated at times during the
last three months of 2012. A number of issues triggered periodic flights
to quality, including signs of decelerating global growth and the
impending US "fiscal cliff." However, these setbacks proved to be only
temporary in nature, and robust risk appetite returned given investors'
search for yield in the low interest rate environment.
The US Federal Reserve Board (the “Fed”) continued to pursue its highly
accommodative monetary policy during the fourth quarter. At its last
meeting of the year, the Fed announced that it would continue making
open-ended purchases of $40 billion per month of agency mortgage-backed
securities, as well as purchasing $45 billion a month of longer-term
Treasuries. The Fed also said that it would keep the federal funds rate
on hold, "…as long as the unemployment rate remains above 6.5%,"
provided inflation was well-contained.
All told, the overall US bond market, as measured by the Barclays US
Aggregate Index, returned 0.22% during the three months ended December
31, 2012. Most US spread sectors (non-US Treasury fixed income
securities) generated positive results during this period, and generally
outperformed equal duration Treasuries. As was the case for much of the
year, risk taking was rewarded, as lower rated bonds generated superior
results. Among the best performers were emerging markets debt and high
yield corporate bonds. Investment grade corporate bonds, commercial
mortgage-backed securities (CMBS) and Treasury Inflation-Protected
Securities (TIPS) also posted strong returns.
During the fourth quarter of 2012, the
Fund posted a net asset value total return of 1.44%, and a market price
total return of 2.02%. The Fund, on a net asset value return basis,
outperformed the Investment Grade Bond Index (the “Index”),1
the Fund’s benchmark, which posted a return of 0.93% for the quarter.
The Fund's spread sector exposures drove its outperformance during the
fourth quarter. While the Fund's underweight versus the Index to
investment grade corporate bonds was a drag on relative performance
given their solid results, the Fund benefited from its overweights to
high yield corporate bonds and commercial mortgage-backed securities
(CMBS). Security selection was also positive for performance during the
quarter. Within the investment grade corporate bond sector, the Fund's
holdings in the financial subsector were the most beneficial. In
addition, we experienced positive results from security selection in
CMBS. Lastly, the Fund’s shorter-than-the-Index duration positioning
contributed to results as US rates moved higher during the quarter.
We have a constructive outlook for the global
economy, although pockets of weakness remain. Despite fiscal
cliff-related headwinds, we feel that reasonable growth is sustainable
in the US. However, we are less positive on growth in Europe given
ongoing issues related to the European sovereign debt crisis. Japan also
faces continued challenges, as it has fallen back into a recession.
We have a generally positive view on the fixed income markets in 2013.
In particular, we like the prospects for the credits markets given
largely supportive fundamentals and supply/demand technicals. That said,
given the amount of spread2 compression since the financial
crisis, credit returns are not expected to be as robust in 2013. As was
the case last year, we anticipate periods of heightened risk aversion to
continue this year. A number of macro issues remain, including the
situation in Europe, US federal government spending cuts and continued
negotiations regarding the raising of the US debt ceiling.
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 Investment Grade Bond Index is an unmanaged index
compiled by the Advisor, constructed as follows: From 12/31/81 to
present—5% Barclays US Agency Index (7+ years), 75% Barclays US Credit
Index (7+ years), 10% Barclays US Mortgage- Backed Securities Index (all
maturities) and 10% Barclays US Treasury Index (7+ years). Investors
should note that indices do not reflect the deduction of fees and
2 “Spreads” refers to differences between the
yields paid on US Treasury bonds and other types of debt, such as
emerging market bonds.
UBS Global Asset Management
Closed-End Funds Desk: 888-793-8637
Source: Fort Dearborn Income Securities, Inc.
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