T. Rowe Price High Yield Fund

Fund Overview

The way the manager of T. Rowe Price High Yield sees it, one man's junk is another man's treasure. 

As of April 04, 2012, the fund has assets totaling almost $9.38 billion invested in 589 different holdings. Its portfolio consists primarily of junk bonds. 

High-yield bonds--often referred to as junk bonds--are those rated BB or lower. (Ratings agencies like Standard & Poor's, Fitch, and Moody's evaluate the riskiness of bonds--whether issued by governments or corporations--and assign ratings to the individual securities.) High-yield bonds are considered risky because the issuers have a higher probability of defaulting on their debt than do those whose bonds have higher ratings. Because of that risk, junk bonds offer higher yields than their tamer counterparts. The goal of the high-yield manager is to pick out bonds whose low ratings overstate the likelihood of default. 

Over the past few years, high-yield funds have experienced somewhat of a roller-coaster ride. In 2008, when defaults abounded, the category got hammered. That year, the average fund in Morningstar's high-yield bond category lost upwards of 26 percent; in the bond market, that's a staggering figure. This fund, which shed 24 percent, was no exception. Since 2009, though, high-yield bond funds have been undergoing a heated rally. Last year, the fund gained 49 percent, and year-to-date through September, it had tacked on another 10 percent. But that's not the only reason why investors have been paying attention to this fund and others like it. With interest rates still at historic lows, yield-starved investors have been eyeing junk bonds with increased enthusiasm. The fund has returned 5.05 percent over the past year and 21.09 percent over the past three years. 

Over time, this fund has stood out. As of the end of September, for instance, its annualized returns for the trailing 15-year period were comfortably over 7 percent. That was good enough to land it in the top 6 percent of Morningstar's high-yield category for that period. Management's balanced approach has been central to this success. Says Morningstar: "While the fund is not immune from high-yield bonds' volatility, its backbone remains in the core B rated segment of the market, reflecting neither an overly aggressive or conservative bent. Around this anchor, manager Mark Vaselkiv deftly constructs larger bets in riskier debt, and this has given the fund a performance edge over most peers." The fund has returned 7.06 percent over the past five years and 8.41 percent over the past decade. 

Investment Strategy

According to the fund's summary prospectus: "The fund`s weighted average maturity generally is expected to be in the 5- to 10-year range, but will vary with market conditions. In selecting investments, we rely extensively on T. Rowe Price research analysts. The fund intends to focus primarily on the higher-quality range (BB and B) of the high yield market."

Role in Portfolio

Morningstar calls this fund a "supporting player."

Management

Mark Vaselkiv manages the fund.

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying: "On most fronts, this fund is strong, benefiting from a top-rate investment culture, moderate fees, and a spotless regulatory history. If management invested more and if the fund had a more-independent board of directors, it would score even more highly."

Morningstar

In the annual Lipper/Barron's Fund Families Survey of 2009, T. Rowe Price ranks 2 out of 61 fund families surveyed.   

Performance

The fund has returned 5.05 percent over the past year, 21.09 percent over the past three years, 7.06 percent over the past five years, and 8.41 percent over the past decade.  

Hypothetical Growth of $10,000

Updated 03.31.2012

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Holdings

The fund invests in junk bonds. 

Asset Allocation

	% Long	% Short	% Net
Cash	5.72	0.24	5.48
Stocks	0.56	0.0	0.56
Bonds	79.62	2.35	77.27
Other	1.44	0.81	0.63
Foreign Bonds	16.2	1.7	14.51
Foreign Stocks	0.25	0.0	0.25
Convertible	0.0	0.0	0.0
Preferred	1.29	0.0	1.29

Updated 12.31.2011

Top Holdings

Performance as of 03.31.2012

Portfolio as of 12.31.2011

	% Net Assets
Reserve Invt-SBI	4.33
Dow Jones Cdx High Yield	2.35
Dow Jones Cdx High Yield	2.24
Dow Jones Cdx High Yield Credit Default Swap	1.17
Dow Jones Cdx High Yield Credit Default Swap	1.09

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Fees

T. Rowe Price High Yield Fund has an expense ratio of 0.74 percent.  

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Risk

In exchange for high yields, the fund risks being stung by defaults. 

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