T. Rowe Price is expanding its institutional investment offerings by launching the floating rate bank loan strategy.
It seeks high current income with lower interest-rate risk by investing at least 80% of the portfolio in floating-rate securities, with a significant portion allocated to a sub-asset class known as “leveraged loans.”
“This strategy enables investors to strategically diversify their high-yield exposure while managing interest rate risk,” says Mark J. Vaselkiv, lead portfolio manager for the firm’s global high-yield strategy. “Leveraged loans rank more senior in companies’ capital structures than high-yield bonds, and thus offer investors greater default protection. They are a more conservative way to invest in the liabilities of high-yield companies.”
As a sub-asset class, floating-rate loans have recently been growing faster than and are now larger than the high-yield bond market. They are typically issued by banks to companies in connection with recapitalizations, acquisitions, leveraged buyouts, and re-financings.
Most of the loans that this strategy invests in are rated below investment grade or not rated and their interest rates are periodically reset.
The strategy does not have maturity restrictions; its weighted average maturity is expected to be in the five- to eight-year range. It also may invest as much as 20% of its net assets in fixed-rate debt.
To comment on this story, email craig.sebastiano@rci.rogers.com.