On February 27, 2017, T. Rowe Price announced their plans to acquire and rebrand a very solid young high-yield bond fund. The rechristened offering will be available by the end of May, 2017.
The adopted fund is Henderson High Yield Opportunities Fund (HYOAX/HYOIX). The Henderson fund has just $61 million in assets and a four-year track record. It’s managed by Kevin Loome, who spent 11 years as a high-yield analyst at Price before leaving to become Head of High Yield Investment at Delaware Investments (which has $167 billion in assets under management) then Head of U.S. Credit at Henderson Global Investors NA, the U.S. subsidiary of Henderson Global (with $125 billion in AUM).
T. Rowe Price already has an exceptionally strong high-yield team headed by Mark Vaselkiv. Mr. Vasilkiv has been running the flagship Price High Yield Fund (PRHYX) since 1996. Over those 20 years, PRHYX has beaten its average peer by 90 basis points annually, which compounds to a huge advantage, and has done so with lower volatility. The $10 billion fund is part of the larger T. Rowe Price Global High Yield strategy, which had $29.4 billion in assets as of December 31, 2016. and led by industry veteran Mark Vaselkiv, has been closed to new investors since 2012.
The new fund will be “substantially similar” to the current Henderson fund and will “complement our strong, existing high yield strategy.” When I asked, the folks from T. Rowe agreed that, in this usage, “complementing” the T. Rowe fund might be translated as “offers potential investors unable to access Mark Vaselkiv’s fund a very fine, but mostly comparable option.” In order to maintain their independence, Mr. Loome and his team will remain in Philadelphia instead of joining the Price folks in Baltimore.
A side-by-side comparison of the two funds is reassuring. By our calculation, the three-year correlation between the two is exceedingly high: 97. In terms of performance, Mr. Loome’s fund has actually outperformed Mr. Vaselkiv’s.
|Annual return||Maximum drawdown||Standard deviation||Sharpe ratio||Beats peer group by…|
|T. Rowe Price High Yield Fund||4.4||-8.9||5.4||0.78||+0.8|
|Henderson High Yield Opportunities Fund, “A “ shares||5.7||-7.2||5.3||1.06||+2.1|
|Lipper high yield peer group||3.6||-9.1||5.5||0.67||–|
I would certainly not concluded on the basis of three years that Mr. Loome’s fund is superior to Mr. Vaselkiv’s, but there seems abundant evidence that it’s going to be a very strong addition to the T. Rowe lineup.
Expenses for the fund’s Investor share class will be 0.79% which is substantially below their current level, far below the HY category average and nearly in-line with PRHYX. The minimum initial investment will be $2500 for regular accounts and $1000 for various tax-advantaged accounts.