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 12/31/2013

Floating rate loans continued their multiyear run of good performance in the fourth quarter as the overall environment for bank debt remained favorable due to low default expectations, abundant liquidity, and improving corporate balance sheets. Robust technical conditions persisted throughout the year. Rising yields hurt most investment-grade asset classes, but the combination of above-average yield, short duration (interest rate sensitivity) characteristics, and the floating rate coupon feature of bank debt generated strong investor demand. The corporate fundamentals underpinning the asset class-earnings and cash flow generation-remain sound and the capital markets were receptive to new loan issuance.

The Floating Rate Fund returned 1.50% in the quarter compared with 1.74% for the S&P/LSTA Performing Loan Index. For the 12 months ended December 31, 2013, the fund returned 4.21% versus 5.41% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 4.21% and 4.53%, respectively, as of December 31, 2013. The fund's expense ratio was 1.07% as of its fiscal year ended May 31, 2013.

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

Leveraged loans are benefiting from an improving economic environment leading to healthy cash flows into the asset class. Services, health care, information technology, and financials remained the portfolio's largest industry exposures. The bulk of the fund's holdings are in first-lien and senior bank loans-traditional loan structures with solid covenants and first priority on assets. The majority of our loans have LIBOR floors, which establish a minimum interest rate payable on a floating rate loan, in an effort to maintain high current income and to protect our income stream in today's low-rate environment. Security selection contributed to relative performance, but our reserves allocation detracted. Although we try to minimize reserves, we need to keep some cash on hand for liquidity and day-to-day operations.

The outlook for floating rate loans remains solid. We believe that floating rate loans represent a compelling investment option compared with most other fixed income sectors. We are encouraged by the fundamental and technical strength underpinning the bank debt market and view floating rate loans as an excellent asset class for diversification, as well as an indirect hedge against inflation in a rising interest rate environment. As always, we are committed to the disciplined investment approach and long-term perspective that have helped us generate attractive risk-adjusted performance.

See Glossary for additional details on all data elements.