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 12/31/2014

The bank loan market posted modest losses for the fourth quarter as below investment-grade debt generally underperformed high-quality fixed income sectors. The most significant factor for the leveraged loan and high yield bond market has been the negative impact of plunging oil prices on the energy industry. However, unlike the high yield market, energy is a relatively small industry within the loan asset class. Although bank debt held up better and was less volatile than high yield bonds during the period, loans do not trade in isolation and were hurt by the underperformance of high yield bonds.

The Floating Rate Fund returned −0.03% in the quarter compared with −0.30% for the S&P/LSTA Performing Loan Index. For the 12 months ended December 31, 2014, the fund returned 1.38% versus 1.82% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 1.38% and 3.60%, respectively, as of December 31, 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 utilities remain our largest industry exposures. Credit selection and our underweight allocation to the energy sector generated a strong positive relative performance contribution. The services and metals and mining sectors also generated good contributions. The fund's largest relative performance detractors were the food and tobacco and health care sectors. 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 (92% of the fund is B rated or higher, including a 7% allocation to short-term holdings). Our modest allocation to high yield bonds, which augment the portfolio's yield and provide liquidity, underperformed in the fourth quarter.

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 capital markets remain receptive to new deals. On the issuance front, we believe that there will be less refinancing activity, which could help to drive the coupons on new issues higher. We expect the default rate to remain below historical levels during 2015. Leading up to the first Federal Reserve rate hike, and likely over a prolonged period of rising interest rates, we think that retail demand for bank loans will improve. Many loans now trade below par. That wasn't the case for most of the past year, so it is possible that we could benefit from a bit of capital appreciation as well.

See Glossary for additional details on all data elements.