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 03/31/2016

The bank loan market posted a solid first-quarter gain, thanks to a strong rebound that began in mid-February and accelerated in March. Factors contributing to the market's advance included moderating concerns about a U.S. recession and improving sentiment stemming from a rally in energy prices and the commodity-related segments. Although the loan market default rate increased, it remains well below the long-term historical average. Cash inflows to the high yield and loan asset classes and a revival in risk appetite helped generate solid appreciation for below investment-grade credit.

The Floating Rate Fund returned 1.68% in the quarter compared with 1.68% for the S&P/LSTA Performing Loan Index. For the 12 months ended March 31, 2016, the fund returned 0.67% versus −0.53% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 0.67% and 3.25%, respectively, as of March 31, 2016. 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. Credit selection and, to a lesser extent, an underweight allocation to the energy sector generated strong absolute and relative performance. Overweight allocations to wireless communications and cable operators, coupled with good credit selection, also contributed. However, credit selection in retail, other telecommunications, and health care, although positive absolute performers, detracted from relative results. 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. The majority of companies in our market appear to be in good financial shape, and we believe that the U.S. economy will continue to generate stable, albeit modest, growth in 2016. 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.