T. Rowe Price Floating Rate ETF’s experienced manager, risk-aware approach, and strong decisions make this a compelling actively managed bank loan ETF option. However, its November 2022 inception is a short period to assess this vehicle on its own. While the ETF is managed in line with the T. Rowe Price Institutional Floating Rate Fund RPIFX. positioning and other risk factors may differ during the ramp up period. As such, the analysis reflects the longer-term history of the open-end fund. 

Paul Massaro, the sole manager on the strategy, brings over 23-years of experience and draws on robust resources. Named to the fund in May 2009, he rose up to assume the head of T Rowe Price’s high yield and bank loan platform in 2021. Massaro has built a formidable crew; he leans on two-decade bank loan veteran and manager, Stephen Finamore, a 20-person fundamental credit research team, six traders, and two quantitative analysts.

These credit researchers provide key input to the process with their diligent, fundamental research, and relative value recommendations that drive portfolio decisions. The research team that averages more than 14-years of industry experience assigns internal credit and conviction ratings from one (highest) to five (lowest), with a focus on improving credits. This highly collaborative, relative value approach that includes input from the entire team informs overall portfolio construction.

This collaboration focuses on corporate fundamentals and relative value opportunities with an emphasis on BB and B rated loans while being selective within CCC rated and second lien loans. Strong relative valuations in CCC rated and below loans led the team to increase this stake to nearly 10% of assets (as of December 2023) from 6.3% the beginning of 2020. The team’s access to some of these harder-to-source deals, such as second lien loans, through strong private equity sponsor relationships helps enhance this edge. Sensible guidelines encourage fund diversification, but the team invests more in higher conviction issuers; for example, the fund’s 15 largest holdings made up about 29.5% of assets compared to about 6.5% for the same issuers in the Morningstar LSTA Leveraged Loan Index.

Effectively managing these various risk exposures has led to compelling long-term performance. Since manager Paul Massaro took the sole reins in May 2009, the Institutional shares’ 5.8% annualized return through January 2024 beat its unique bank loan Morningstar Category median peer’s 5.5% gain, and its results over five- and ten-year trailing periods ranked among the category’s best. Diligent security selection, a proven ability to eschew most defaults, and effective risk management was key to this strong result. Avoiding the riskiest issuers has helped dampen volatility and, as such, has suffered less than most peers in market selloffs, at the cost of less spectacular returns during rebound periods.

Analyst Rating

This active bank loan ETF brings extensive experience.

Senior Analyst

Paul Olmsted

Consistency and discipline, paired with diligent credit research, earn this this strategy a High Process rating.

T. Rowe Price's managers and asset allocation committee begin the process with their monthly top-down views that inform their desired risk levels for the fund. The key here is diligent, holistic credit selection where the sector specialists actively screen the universe, eliminate small and less liquid loans, and then assign proprietary ratings and conviction scores from one (highest) to five (lowest), with a focus on improving credits.

Sensible portfolio guidelines help manage overall risk and ensure adequate diversification but also give manager Paul Massaro enough leeway to express high conviction ideas. Industry exposures normally stay within 5 percentage points of the weightings of the Morningstar LSTA Leveraged Loan Index; but individual issuer exposures can be quite concentrated. As of year-end 2023, the fund’s 15 largest holdings made up about 29.5% of the fund’s assets compared to about 6.5% for the same issuers in its benchmark. 

Daily communication and idea-sharing underpin the fund’s consistent process. Research analysts are also responsible for relative value recommendations on their issuers and industries which requires a broader understanding beyond their respective sectors. Security selection in BB and B rated loans drive performance here but the fund may delve into CCC rated or second lien loans of high conviction issuers. Layering cash and more-liquid securities as a buffer to this less-liquid asset class ensures ample liquidity.

High

Process

Bank loan veteran Paul Massaro leads this well-resourced team that combines extensive bank loan experience with strong decision-making to earn a High People rating.

While Massaro is the only named manager here, the strategy requires a team effort. He brings more than two decades of investment experience to the strategy and began his T. Rowe Price career in 2003 as a high yield analyst.  From there, Massaro rose to portfolio manager in 2008 and eventually took over as the head of the firm’s high yield and bank loan franchise in 2021. Another bank loan veteran, Stephen Finamore, works alongside Massaro to help make portfolio decisions; although not formally named on this fund, Finamore’s 23-years of experience gives the strategy another capable hand and lessens key person risk; he joined the floating rate team in 2013 and manages bank loan separate accounts.

The team draws on ample and capable supporting resources, including a 20-person dedicated high yield and bank loan research team that averages more than 14 years’ experience, six traders, and two quantitative analysts. They also stand out from peers by regularly accessing the firm’s large stable of equity analysts for capital structure perspectives and company-specific insights.

This stable team has hasn’t had any recent material departures and only modest turnover within the credit research and trading teams. Two experienced research analysts left in 2022, yet the firm easily backfilled those roles with a mix of experienced and newer analysts and even netted an additional researcher to the team over the year. 

Massaro’s personal investments in the strategy exceed $100,000.

People

T. Rowe Price remains an adaptable, trustworthy steward of capital, earning a High Parent rating. A $1.4 trillion asset base gives this time-tested firm a scale and presence few can match, but its heft has made it tougher for its equity strategies to build up positions in small- and mid-cap stocks without pushing against firm-level ownership limitations. To address this challenge, the firm split into two distinct research entities in March 2022. Six strategies, including five capacity-constrained equity strategies, moved to the new division, T. Rowe Price Investment Management, while the rest of the firm now exists as T. Rowe Price Associates. From 2019 to 2021, the firm bolstered its topnotch equity analyst team with new hires to fortify each division's research resources and ensure an orderly transition.

T. Rowe Price added to its array of offerings by acquiring alternative credit specialist Oak Hill Advisors in 2021. T. Rowe has seldom grown inorganically, but the move expanded its capabilities and helped diversify its asset base. Equities remain T. Rowe's strength. It would like to grow its fixed-income business, though that segment remains a step behind peers; it only recently hired dedicated risk personnel in that area.

While the shift to passive investing continues to challenge active managers, T. Rowe Price's impressive bench of investment talent, prudent corporate management, and relatively low fees continue to give it an advantage.

Parent

T Rowe Price Floating Rate ETF

TFLR is actively managed to invest in a broad portfolio of USD-denominated floating-rate loans. The portfolio predominantly holds high-yield securities.

T. Rowe Price added the T. Rowe Price Floating Rate ETF to their fixed income lineup in late 2022. The ETF invests in non-investment grade floating rate loans and debt. This article reviews the new TFLR ETF and compares it against return and risk data from several other HY debt investment vehicles. TFLR failed to capture higher coupons or yields during the FOMC's rate hikes, but performed well compared to other similar funds. For most investors, TFLR rates a Sell.

Exploring The T. Rowe Price Floating Rate ETF

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T. Rowe Price Launches Floating-Rate ETF

T. Rowe Price Group

The new fixed income ETF began trading today on NYSE Arca, Inc., and expands the firm's ETF line-up to ten active ETFs BALTIMORE , Nov. 17, 2022 /PRNewswire/ -- NEWS  T. Rowe Price (NASDAQ-GS: TROW), a global investment management firm and a leader in retirement services, announced today the addition of a fifth actively managed fixed income exchange-traded fund (ETF), T.

News for T Rowe Price Floating Rate ETF ETF (TFLR)