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 03/31/2014

Floating rate loans posted solid first-quarter gains, extending their multiyear string of strong performance. Although one very large issuer is going to default in the second quarter, the environment for bank debt remained favorable due to abundant liquidity and improving corporate balance sheets. Overall, the corporate fundamentals underpinning the asset class (earnings and cash flow generation) remained sound, and the capital markets were receptive to new loan issuance. With absolute yields still solidly higher than in most other fixed income sectors and limited interest rate risk, bank debt continued to generate strong investor demand.

The Floating Rate Fund returned 0.91% in the quarter compared with 1.13% for the S&P/LSTA Performing Loan Index. For the 12 months ended March 31, 2014, the fund returned 3.30% versus 4.31% for the S&P/LSTA Performing Loan Index. The fund's 1-year and Since Inception (07/29/2011) average annual total returns were 3.30% and 4.45%, respectively, as of March 31, 2014. 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

Services, health care, information technology, and financials remain the portfolio's largest industry exposures. Credit selection within health care and cable operators contributed to relative returns. Within health care, we took a jaundiced view on several loans that were refinanced with lower coupons and little improvement to overall leverage. We remain extremely selective regarding the recent new issuance, and we participated in less than one-third of the first-quarter offerings. Credit selection in utilities and an underweight allocation to the industry, and in particular its largest and most volatile issuer, detracted from relative results. The portfolio is primarily invested in first-lien and senior bank loans, traditional loan structures with solid covenants and first priority on assets.

The outlook for floating rate loans, in our view, remains solid. Issuers have repaired their balance sheets, extended maturity dates, and reduced capital costs through refinancing activity. The combination of above-average yield, short-duration (interest rate sensitivity) characteristics, and the floating rate coupon feature of bank loans should continue to generate strong investor demand. Our team maintains a commitment to credit research and risk-conscious investing that has led to favorable returns for our shareholders over various market cycles. As always, we aim to deliver high current income while seeking to contain the volatility inherent in this market, and we view floating rate loans as an excellent asset class for diversification.

See Glossary for additional details on all data elements.