T. Rowe shuts high-yield funds to new investors

Tue May 1, 2012 1:00pm EDT

* Shuts High Yield Fund and Institutional High Yield Fund

* Cites strong demand, in line with Morningstar trend data

May 1 (Reuters) - T. Rowe Price Group Inc said it has closed a pair of high-yield bond funds to new investors as flows soar into the sector amid low interest rates.

The Baltimore asset manager said on Tuesday that its High Yield Fund and its Institutional High Yield Fund will not accept money from new investors, though they will accept money from existing investors.

The company said it took the step to protect current investors. In a statement, the portfolio manager of High Yield Fund and head of the company's taxable high-yield bond team, Mark Vaselkiv, said too much extra cash could make it hard for the funds to invest efficiently and could lead to too much diversification.

"The low interest rate environment has ... prompted income-seeking investors to consider this sector, and some of the strong flows into our high-yield funds reflect their increased appetite for yield," he said.

Between them, the two funds had inflows of $627 million in the first three months of 2012. They had $11.7 billion in combined total assets at March 31.

T. Rowe Price manages $21 billion in high-yield portfolios overall, and other funds remain open, including its Tax-Free High Yield Fund and Floating Rate Fund, which invests in bank loans.

The high-yield sector has provided investors a chance for good yields amid low interest rates -- but also more risk, given the low-grade "junk" bonds held in the funds.

Over the three years ended April 30, high-yield bond funds have gained 17.3 percent annually, according to Chicago fund research firm Morningstar Inc, the most of any bond fund category.

In the 2012 first quarter, investors added $14.7 billion to the funds, Morningstar found.

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