T. Rowe Price has launched a new actively managed fixed income ETF targeting floating-rate debt securities.
Paul Massaro, Head of Global High Yield at T. Rowe Price.
The T. Rowe Price Floating Rate ETF (TFLR US) has been listed on NYSE Arca with an expense ratio of 0.61%.
Floating-rate bonds offer coupons that adjust to reflect changes in interest rates. Compared to traditional bonds which pay fixed coupons, this feature makes floating-rate securities far less susceptible to losing value when interest rates increase.
Investors have been increasingly taking a defensive stance on interest rates as the Federal Reserve continues to aggressively raise its benchmark rate in its bid to tame rampant inflation. Most recently, the Fed increased the federal funds rate by 0.75 percentage points for the fourth time in a row in November, bringing the key rate to 3.75%-4.00%.
Rates are expected to peak at 4.5% to 4.75% in 2023, according to the US central bank’s own projections.
Investment approach
The ETF replicates the strategy behind a $1.7 billion T. Rowe Price mutual fund which has a performance track record stretching back to 2008.
Similar to the existing mutual fund, the ETF is managed by Paul Massaro, Head of Global High Yield at T. Rowe Price, who has 22 years of investment industry experience including 19 years at T. Rowe Price. Massaro has been managing the firm’s floating rate strategy since its inception.
The strategy consists of investing in floating-rate loans and other floating-rate debt securities, using a disciplined approach to credit selection that features proprietary research and risk control.
The portfolio is broadly diversified across as many as 300 issuers and focuses primarily on higher-yielding loans with credit ratings between BB and B, a focus that Massaro believes is likely to keep volatility at below-market rates over time.
Paul Massaro, Head of Global High Yield at T. Rowe Price, said: “Floating rate bank loans hold a unique position across the broad fixed income landscape given their combination of a floating rate coupon and elevated placement in a company’s capital structure – an important risk management attribute. Historically, bank loans have provided a partial hedge against rising rates as well as low return correlations with other asset classes, making them a solid portfolio diversifier. Bolstered by our close cooperative working relationship with T. Rowe Price’s equity research group and investment-grade credit analysts, we believe this new ETF can serve as a quality actively managed fixed income building block to client solutions.”