This Intermediate Government Fund Sets the Bar in Category

Emory Zink: Consistent, positive long-term performance backed by a solid process, experienced management, and low fees not only earns Vanguard GNMA Fund a Morningstar Analyst Rating of Gold, but these characteristics also set the bar for the intermediate-government Morningstar category.

Manager Michael Garrett, of subadvisor Wellington Management Company, has been with the fund since 1999, with the exception of a break in 2009, when he briefly left the post to assist with the Federal Reserve's [Agency MBS Purchase Program]. He returned to the fund the following year as lead manager. Garrett and his team focus on minimizing prepayment risk and buying Ginnie Mae mortgage pass-throughs that look cheap relative to the fund's Bloomberg Barclays U.S. GNMA Index benchmark. The portfolio may also own smaller stakes in Fannie Mae- and Freddie Mac-backed fare, but for the most part, holdings are kept fairly simple. This straightforward process, with its efficient execution, has produced consistent performance that is helped by one of the cheapest price tags in the category.

Over the trailing 10 years ended January 2018, the fund's 3.6% investor shares return ranks in the top decile of the intermediate-term government category, further contributing to the fund's reputation as a doyen of mortgage investing.