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Dear Shareholders,
We are pleased to report on the results of The New America High Income Fund (the "Fund") for the period ending June 30, 2011. The portfolio's performance, under the management of T. Rowe Price Associates, Inc., continued to reap the benefits of a positive market environment during the period. The Fund's net asset value (the "NAV") was $10.45 on June 30th. Based upon the NAV, the Fund's total return for the first six months of 2011 was 5.99%, slightly higher than the 5.97% total return of the Lipper Closed-End Fund Leveraged High Yield Index. The Fund's total return based on stock price was 12.48% for the period. As of June 30th, the Fund's market price was $10.86, representing a premium of 3.9% to the NAV on the same date. The Fund continued to pay a dividend of $.065 per share per month. The annualized common stock dividend yield for a purchase of stock at year-end 2010 for the six months ending June 30th was 7.8%. As we always remind our shareholders, there is no assurance that the common stock dividend will remain at the current level.
The Fund has benefited by being invested in an asset class with strong relative performance and having a historically low cost of leverage. These conditions are unlikely to continue indefinitely. It is particularly important to recognize the impact of leverage on the Fund's results. The Fund's leverage has been beneficial in the recent positive high yield bond market environment, increasing the NAV and the common stock dividend. However, in a market decline, leverage is detrimental to Fund's total return. The ATP contributed approximately 25% of the common dividend in the first half of 2011.
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Total Returns for the Periods Ending
June 30, 2011 |
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1 Year |
3 Years Cumulative |
New America High Income Fund
(Stock Price and Dividends)* |
29.74% |
89.34% |
New America High Income Fund
(NAV and Dividends) |
20.46% |
57.62% |
| Lipper Closed-End Fund Leveraged High Yield Average |
19.30% |
25.30% |
| Credit Suisse High Yield Index |
14.59% |
38.16% |
| Citigroup 10 Year Treasury Index |
1.82% |
18.32% |
Sources: Credit Suisse, Citigroup, Lipper Inc., The New America High Income Fund, Inc.
Past performance is no guarantee of future results. Total return assumes the reinvestment of dividends.
*Because the Fund's shares may trade at either a discount or premium to the Fund's net asset value per share, returns based upon the stock price and dividends will tend to differ from those derived from the underlying change in net asset value and dividends.
Market Review
High yield bonds continued to deliver compelling returns through the first six months of the year. The gains for the asset class came despite what felt like an endless series of momentous events playing out across the globe. The last few months have brought revolutions and protests throughout the Middle East, a tragic earthquake, tsunami and devastating nuclear crisis in Japan and continued angst across fixed income markets relating to the financial viability of several European countries, led by Greece. While those macro forces contributed to an unsteady backdrop, high yield companies continued to deliver solid operating performance and demonstrate healthy liquidity, rewarding investors with gains. The lowest rated bonds within the asset class had delivered the biggest returns as 2010 came to a close, whereas more recently performance leadership moved to the higher quality tier, with crossover bonds - those on the cusp of returning to investment grade - delivering the biggest gains as the first half of 2011 came to a close.
Strategy Review
Financials continued to provide rewarding gains for the portfolio as New America's holdings from this sector returned 27% over the last year. The former GM finance subsidiary, now called Ally Financial, led the results, but the Fund benefited from many financial services credits, with positions in American International Group, CIT, Nuveen and E-Trade having rallied nicely. The portfolio has long maintained an out-sized position in issues related to the wireless industry and was rewarded in the first half with attractive performance from Sprint, Clearwire and NII Holdings (Nextel International). The wireless industry continues to enjoy the benefits of consumer resiliency, demonstrated asset value and merger and acquisition activity.
One industry that shares a high degree of consumer dependency that has not fared well in recent months is the retail sector. The Fund has faced modest losses in a few names through exposure to credits represented by Gymboree, J. Crew and Claire's. Gymboree and J. Crew have had to grapple with severely elevated prices in the cotton markets which investors suspect may crimp margins in the quarters ahead. Claire's is working to expand its European footprint, but has run head long into soft conditions in new markets it would like to enter. In all three cases, while the underlying businesses have encountered some near term setbacks, the companies generate compelling amounts of cash flow and each looks capable of generating the liquidity necessary to service underlying debt.
Outlook
Many of the macro events that have proved a challenge over the first six months of the year remain unresolved and are expected to continue to be of concern in the months ahead. Most pressing, perhaps, in the coming weeks and months will be negotiations on the U.S. budget. Natural disasters, political tensions and occasional financial dislocations are all but certain to occur from time to time. Whether any particular crisis alone or in concert will be enough of a factor to disrupt the larger economy to a degree that upsets high yield performance remains an open question. We believe that the portfolio's concentrations in defensive sectors including energy, services, health care and wireless should provide some stability should turbulence arrive. It is also important to recognize that high yield as an asset class has come a very long way since the depths of the financial crisis in late 2008. To be sure, such gains are largely behind us, for now. Even so, the Fund's adviser believes there continue to be opportunities to find companies with liquid balance sheets and healthy underlying businesses whose bonds offer attractive yields, even among low-B and CCC-rated credits.
The first half of 2011 did not lack for attention grabbing, sometimes disconcerting headlines and we expect the second half of the year to be very likely to offer more of the same. Our best defense for these sometimes adverse macro forces remains careful fundamental credit selection. As always, T. Rowe Price is committed to the disciplined investment approach and long-term perspective that have helped the Fund generate attractive risk-adjusted performance in the past.
Robert F. Birch
President
The New America High Income Fund, Inc. |
Mark Vaselkiv
Vice President
T. Rowe Price Associates, Inc. |
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Ellen E. Terry
Vice President
The New America High Income, Inc. |
Paul A. Karpers
Vice President
T. Rowe Price Associates, Inc. |
The views expressed in this update are as of the date of this letter. These views and any portfolio holdings discussed in the update are subject to change at any time based on market or other conditions. The Fund and T. Rowe Price Associates, Inc. disclaim any duty to update these views, which may not be relied upon as investment advice. In addition, references to specific companies' securities should not be regarded as investment recommendations or indicative of the Fund's portfolio as a whole
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