T. Rowe Price Group Inc. (TROW:US) will close two of its junk-bond funds to new investors next month amid a surge in demand for higher-yielding debt.
The T. Rowe Price High Yield Fund, which had $9.38 billion of assets at the end of February, will stop accepting money from new clients on April 30, according to a filing today with the U.S. Securities and Exchange Commission. The firm’s $2.49 billion Institutional High Yield Fund (TRHYX:US) will also close to new customers on the same date.
Junk-bond funds took in a record $23.5 billion over the previous 16 weeks, according to a March 23 report by JPMorgan Chase & Co. (JPM:US) T. Rowe Price could be forced to put new cash to work as high-yield bonds become more expensive, thereby lowering the yield that its funds pay to shareholders.
“Their problem is where are they going to find these securities at reasonable prices,” said Michael Lipper, the head of Lipper Advisory Services Inc. in Summit, New Jersey. Closing the funds “is the responsible thing to do,” he said.
The High Yield Fund (PRHYX:US) has generated average annual returns of 8.7 percent since it started on Dec. 31, 1984, according to T. Rowe Price’s website. Run by Mark Vaselkiv since 1996, the fund returned 5.1 percent return this year through yesterday, beating 51 percent of competitors with a similar investment style, according to data compiled by Bloomberg.
The fund’s net assets totaled $8.4 billion at the end of February 2011, according to prior SEC filings. Heather McDonold, a spokeswoman for T. Rowe Price, said the fund is closing after heavy cash deposits from clients. She declined to provide specifics.
“We are concerned that strong cash flows will continue for some time and could overwhelm our ability to invest effectively,” McDonold said.
T. Rowe Price, based in Baltimore, had $489.5 billion in assets under management at the end of last year.
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