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 03/31/2015

The bank loan market posted solid first-quarter returns. Although they slightly lagged the high yield bond market, loans were much less volatile. Technical conditions were a major source of support, as new issuance declined year-over-year and strong demand propelled loan prices higher despite volatility in commodity prices and interest rates. During the quarter, the Federal Reserve continued to prepare the market for its first interest rate increase since 2008, which most forecasters believe will happen later in 2015. However, the Fed's latest projections for economic growth and inflation, plus the disappointing March employment data, likely justify a slower trajectory of subsequent rate hikes than in prior tightening cycles

The Floating Rate Fund returned 2.21% in the quarter compared with 2.33% for the S&P/LSTA Performing Loan Index. For the 12 months ended March 31, 2015, the fund returned 2.68% versus 3.02% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 2.68% and 3.97%, respectively, as of March 31, 2015. 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

Credit selection contributed to relative performance during the quarter, particularly in the energy and metals and mining sectors. Based on our conclusion that oil and commodity price headwinds outnumbered tailwinds, we kept an underweight allocation to both sectors, which also benefited relative performance. Our reserves allocation, necessary for liquidity purposes, detracted from performance in a generally positive market environment. The portfolio is primarily invested in high-quality, traditional loan structures - those with solid covenants and first priority on assets in the event of a default. We focus on B and BB rated loans. We also hold a modest allocation to high yield bonds, which augment the portfolio's yield and provide liquidity.

Leveraged loans have generated steady income and been more defensive than high yield bonds because commodity-related sectors account for a smaller portion of the loan market. Additionally, bank loans are far less affected by interest rate fluctuations than fixed-rate sectors. The default rate in the loan market should remain reasonably low through 2015. Most below investment-grade companies have improved their balance sheets and their ability to service outstanding debt obligations. At this time, the majority of new issuance is being used to fund merger and acquisition activities, which creates much-needed new supply. These factors combined make us constructive on the market.

See Glossary for additional details on all data elements.