T. Rowe Price Floating Rate Fund (PRFRX)
Ticker Symbol:
PRFRX
Fund Status:
Open to new Retail investors  /  Open to subsequent Retail investments
Fund Management
Fund Manager
  • Paul M. Massaro
  • Managed Fund Since: 07/29/2011
  • Joined Firm On 06/30/2003*
  • B.S., Cornell University; M.B.A., University of Pennsylvania, The Wharton School

*Firm refers to T. Rowe Price Associates and Affiliates
Quarterly Commentaries
as of 09/30/2014

Leveraged loans produced modest losses for the three-month period; September marked the first negative monthly return for the asset class this year. The third-quarter bank loan market environment was characterized by retail investor outflows and new supply compared with steady inflows and heavy refinancing activity earlier in the year. Overall, B rated loans held up better than other credit quality buckets. Additionally, the loan default rate fell for a fifth consecutive month, since the peak in April when TXU defaulted. The par-weighted leveraged loan default rate (excluding TXU) remains well below the long-term average at 0.95%.

The Floating Rate Fund returned −0.54% in the quarter compared with −0.27% for the S&P/LSTA Performing Loan Index. For the 12 months ended September 30, 2014, the fund returned 2.94% versus 3.90% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 2.94% and 3.90%, respectively, as of September 30, 2014. The fund's expense ratio was 0.86% as of its fiscal year ended May 31, 2014.

For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Floating Rate Fund charges a 2% redemption fee on shares held 90 days or less. The performance information shown does not reflect the deduction of the redemption fee; if it did, the performance would be lower.

Benchmark Definitions

Services, health care, information technology, and financials remain our largest industry exposures. Credit selection in metals and mining, entertainment and leisure, and cable operators contributed to performance versus the benchmark. Short-term holdings also benefited relative returns during the third-quarter weakness. However, credit selection in broadcasting, consumer products, and food and tobacco holdings hurt relative performance. The portfolio is primarily invested in high-quality, traditional loan structures, those with solid covenants and first priority on assets. We focus on B and BB rated loans as these credit quality segments have historically outperformed CCCs with significantly less volatility. Our modest allocation to high yield bonds, which augment the portfolio's yield and provide liquidity, underperformed in the third quarter.

The outlook for floating rate loans, in our view, remains solid. Issuers have repaired their balance sheets, extended maturity dates, and reduced capital costs through refinancing activity. With no change to our low default rate expectations and solid fundamentals underpinning in the U.S. economy, the leveraged loan market remains attractive. We believe that as new issues come to market with structures that are favorable for investors, our credit analysis and selection process will increasingly uncover compelling long-term investment opportunities. As always, our goal is to deliver high current income while seeking to contain the volatility inherent in this market. We view floating rate loans as an excellent asset class for diversification.

See Glossary for additional details on all data elements.