Our Favorite Government-Bond Funds Today

Emory Zink: With the Federal Reserve signaling a slow but steady upward trend in interest rates, as well as its intention to pare back the U.S. Treasuries and mortgages on its balance sheet, funds with an exclusive government-securities focus have come under pressure in recent months. Asset flows in Morningstar's intermediate-government bond category have been negative over the first half of 2017 and, generally speaking, investors have been cautious on the mortgage sector in particular, given tight spreads and uncertainty over how monetary policies will affect those markets in the near term. With that said, though, U.S. Treasuries and mortgages remain a core component of a diversified fixed-income portfolio, typically providing ballast when riskier corners of the market turn highly volatile, particularly given that these sectors court more interest-rate risk than credit risk.

A disciplined process, supported by robust data and tools, is critical for a government-focused fund to deliver attractive risk-adjusted performance over the longer term--characteristics that are evident at Fidelity and BlackRock. Fidelity's Bill Irving and Franco Castagliuolo have proven their skill at navigating tough markets and nimbly positioning funds in their purview. An investor choosing a stand-alone option dedicated to agency mortgages might consider Gold-rated Fidelity GNMA Fund, while those wanting Treasury and securitized exposure in addition to mortgages might find Gold-rated Fidelity Advisor Government Income compelling. BlackRock also offers options in the category that are underpinned by cutting-edge analytical tools and an expansive securitized team. Co-portfolio managers Matt Kraeger and Sid Mehta orchestrate at the top for Silver-rated BlackRock GNMA, and on Silver-rated BlackRock Government Bond, the two are joined by Bob Miller.

Either team shares a rigorous process and disciplined implementation, and given the current market environment, either offers investors thoughtful exposure to government-focused securities.