T. Rowe Price Floating Rate Fund (PRFRX)
Ticker Symbol:
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 12/31/2015

The bank loan market a posted fourth-quarter loss but outperformed high yield bonds amid volatile market conditions. With less commodity sector exposure and better relative positioning in capital structures, loan prices were more resilient and less volatile than high yield bonds during the period. However, below investment-grade securities generally underperformed higher-quality fixed income sectors. Loans do not trade in isolation from bonds, so the performance of the asset class was hurt by association with the high yield market sell-off. The default rate in the loan market remained well below the market's long-term average.

The Floating Rate Fund returned −0.95% in the quarter compared with −2.04% for the S&P/LSTA Performing Loan Index. For the 12 months ended December 31, 2015, the fund returned 1.19% versus 0.10% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 1.19% and 3.05%, respectively, as of December 31, 2015. The fund's expense ratio was 0.86% as of its fiscal year ended May 31, 2015.

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

The bulk of the fund's holdings are in bank loans and corporate bonds in the higher-quality tiers of the below investment-grade universe. We invest primarily in BB and B rated loans, which have historically outperformed CCC rated loans with less volatility and helped reduce portfolio volatility in the period. Our underweight allocation to the energy and metals and mining sectors benefited relative performance as those sectors posted steep losses in the fourth quarter. The portfolio has a large allocation to traditional loan structures, those with solid covenants (a legal provision requiring the borrower to fulfill certain conditions) and LIBOR floors, which provide additional income for bank debt.

Aside from commodity-related issuers, the overall environment for loan investing appears positive. Companies have abundant liquidity, near-term maturity issues that were a concern a couple of years ago have been addressed, and the corporate fundamentals of companies in most sectors of the asset class are stable. Balance sheet leverage has remained in check, and debt service ratios have benefited from companies refinancing into lower rates. This leads us to believe that the default rate in the loan market (aside from energy- and commodity-related issuers) will remain well below the long-term historical levels. Bank debt has become an increasingly attractive option for investors looking for above-average yield and below-average interest rate sensitivity compared with most other fixed income sectors.

See Glossary for additional details on all data elements.