2 Top-Performing Intermediate Government Bond Funds

When the stock market falls (as it has in 2025 so far), investors often turn to government bonds for safety. Mutual funds can be an easy way to gain broad exposure to this market.

To find the top-performing funds in this category, we looked for those with the best returns over the last one-, three-, and five-year periods. Both names that passed the screen are actively managed:

• American Funds Mortgage Fund AFFMX
• Voya GNMA Income Fund LEINX

Intermediate Government Bond Funds Performance

Over the last 12 months, intermediate government bond funds have returned 6.36%. On an annualized rate, these funds have returned 1.06% over the last three years and lost 1.18% over the last five. Meanwhile, the Morningstar US Core Bond Index has returned 6.13% over the last 12 months, gained 1.44% per year over the last three years, and lost 0.95% per year over the last five years.

What Are Intermediate Government Bond Funds?

These portfolios have at least 90% of their holdings in bonds backed by the US government or government-linked agencies. This minimizes their credit risk, as the US government is unlikely to default on its debt. These portfolios have durations typically between 3.5 and 6.0 years. Consequently, the group’s performance—and its volatility—tends to fall between that of the short government and long government bond categories.

Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index when determining duration assignment. “Intermediate” is defined as 75%-125% of the three-year average effective duration of the MCBI.

Screening for the Top-Performing Intermediate Government Bond Funds

We looked at returns from the past one-, three-, and five-year periods using data Morningstar Direct. We screened for open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with a Morningstar Medalist Rating of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left two names.

Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.

American Funds Mortgage Fund

• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★

This $11.3 billion fund has climbed 7.51% over the past 12 months, outperforming the average fund in its category, which rose 6.36%. The fund, launched in January 2017, has climbed 1.40% over the past three years and lost 0.19% over the past five.

“American Funds Mortgage’s proven team merits an upgrade in its People rating to High from Above Average; the rating for its distinctive, valuation-sensitive Process remains Above Average ... Ample management experience stands behind this multimanager offering. Fergus MacDonald has run a sleeve of this fund since its 2010 inception and took over as head of the team in charge of monitoring aggregate fund-level exposures in early 2021...Keeping tabs on the likely path of interest rates is key to this fund’s agency MBS-centered approach. The managers’ views on interest rates along with the yield premiums of MBS over Treasuries inform their willingness to increase MBS exposure to around 90% of portfolio assets (as they did in 2024’s first quarter) or to drop to about 50% (as they did in late 2021) ... This fund is top-notch, provided investors can access one of its cheaper share classes, which cost around 30 basis points.”

—Alec Lucas, director

Voya GNMA Income Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★★

Over the past 12 months, the $1.1 billion Voya GNMA Income Fund rose 7.02%, while the average fund in its category rose 6.36%. The Voya fund, launched in January 2002, has climbed 1.55% over the past three years and lost 0.32% over the past five years.

“Voya GNMA Income’s managers bring significant experience in mortgage markets to this calculated and risk-aware approach that has provided strong performance over the long term ... Given the manager’s depth of experience, they typically find long-term value in securities that are outside of its benchmark, the Bloomberg GNMA Index, such as agency CMOs, agency CMBS, and other agency mortgage products ... The managers have many levers to pull here, and performance has consistently rewarded investors. From June 2009 through January 2025, Dutra and McWhorter’s tenure on the fund, the institutional shares’ 2.3% annualized return outpaced 88.0% of distinct peers, and the fund’s Sharpe ratio (a measure of returns relative to standard deviation) landed in the category’s top decile.”

—Joe Bullard, associate analyst