T Rowe Price targets higher rates with planned bond ETF

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T Rowe Price plans to add strategies to its nascent lineup of bond ETFs, including one aimed at protecting portfolios against rising interest rates.

The manager plans to launch the Floating Rate ETF and the US High Yield Bond ETF, according to filings last week. The products are expected to join three other fixed income ETF strategies the company launched in September 2021.

The upcoming ETFs will be managed by the same portfolio managers and with broadly similar strategies to the existing mutual funds, the $5.6 billion Floating Rate Fund and the $501 million US High Yield Bond Fund. dollars, confirmed a spokesperson for the Baltimore-based store.

Kevin Loome will lead the high yield ETF and Paul Massaro will oversee the floating rate strategy.

This article was previously published by Ignites, a title owned by the FT Group.

The prices of the two new ETFs are lower than the cheapest share classes of existing mutual funds. The US High Yield Bond ETF will charge 56 basis points, compared to 60 basis points for the mutual fund’s institutional-grade shares. The floating-rate ETF will charge 61 basis points, compared to 65 basis points for institutional-grade shares of its mutual fund counterpart.

Both ETFs are expected to launch on or around August 1, according to preliminary prospectuses.

Floating rate bond ETFs, which include bank loans and senior notes, are attracting investors’ attention because their structure allows their interest rates to change periodically based on prevailing rates.

Last month, executives at Invesco and Franklin Templeton noted strong flows in their bank loan products and ultra-short bond strategies as investors brace for bond values ​​to tumble as rates rise.

Bank loan ETFs brought in $2.2 billion in the first four months of 2022, according to data from Morningstar Direct, and saw positive net sales for the 18 months ended last month. Bank loan mutual funds, meanwhile, raked in $22.2 billion year-to-date through April, second only to net sales of $24.7 billion from large mutual funds. mixed placement.

Assets across all bank loan ETFs were $21 billion at the end of April, while bank loan mutual funds collectively accounted for $119 billion as of April 30, according to Morningstar.

For T Rowe, the Floating Rate Fund was its best-selling bond mutual fund this year, with $1.4 billion in net sales through April, according to Morningstar Direct. Only the company’s $10.9 billion U.S. equity research fund generated more new cash over the same period, at just under $3 billion.

Morningstar director of manager research Russ Kinnel in March named mutual fund T Rowe one of his top picks in bank lending because of Massaro’s track record of “returns.” strong with minimal risk.

“Managing a bank loan fund is a challenge,” he noted, because securities tend to be less liquid and have lower credit quality than other bonds.

Massaro has been part of the fund since 2011, the fund’s fact sheet says.

The floating rate generated top-quartile performance in the one-, three-, and five-year periods ending May 12, according to data from Morningstar Direct. One-year returns of 11 basis points outperformed the Morningstar Bank Loan category median fund by 116 basis points, three-year returns of 2.4% were 90 basis points better, and five-year return of 2.9% beat the median peer return by 65 basis points.

High-yield strategies, meanwhile, saw outflows as investors turned away from riskier assets amid rising rates. High-yield bond mutual funds lost $18.9 billion in assets in the first four months of the year, and high-yield bond ETFs lost just over $16 billion in the first four months of the year. of the period.

*Ignites is an information service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at enflamme.com.

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