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 09/30/2015

The bank loan market posted third-quarter losses but outperformed high yield bonds amid volatile market conditions. Factors contributing to the positive risk-adjusted performance of loans included their senior-secured position in the capital structure, lower price volatility, and relatively limited exposure to commodity-related sectors. The default rate in the loan market remained relatively muted and ended the period at approximately 1.3%, well below the long-term average. A modest $59 billion of loan new issuance came to market in the quarter; strategic merger and acquisition activity accounted for about 65% of the volume, creating net new supply. In aggregate, higher-quality loans held up better than lower-quality issuance.

The Floating Rate Fund returned −0.82% in the quarter compared with −0.96% for the S&P/LSTA Performing Loan Index. For the 12 months ended September 30, 2015, the fund returned 2.13% versus 1.88% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 2.13% and 3.47%, respectively, as of September 30, 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

Loan selection and sector allocation decisions contributed to relative returns in the quarter. Our underweight allocation to the energy and metals and mining sectors benefited relative performance, as did credit selection in information technology. However, credit selection and our overweight allocation in wireless communications, as well as an underweight allocation to the services sector detracted from relative returns. The portfolio has a large allocation to traditional loan structures with solid covenants (a legal provision requiring the borrower to fulfill certain conditions) and LIBOR floors, which provide additional income for bank debt. The majority of our loans are rated B or higher, which helped reduce portfolio volatility in the period.

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. The fundamentals underpinning most companies in the asset class are solid, as evidenced by the deleveraging of corporate balance sheets and strong cash flow generation. This leads us to believe that the default rate in the loan market will remain low. The Federal Reserve continues to prepare the market for its first interest rate increase since 2006. We believe that the focus on our asset class is likely to increase, and investor demand should improve when interest rates rise and the resetting rate feature of loans becomes a beneficial factor.

See Glossary for additional details on all data elements.