Vanguard GNMA Fund

Scorecard
5 / 5 Stars
Lipper
5 5 5 5 3
Zacks Investment Research
1 (Strong Buy)
Standard & Poor's
5 / 5 Stars
TheStreet.com
C (Hold)

U.S. News evaluated 75 Intermediate Government Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Note: Profile written for different share class.

Performance

The fund has returned 5.09 percent over the past year, 3.00 percent over the past three years, 4.45 percent over the past five years, and 5.09 percent over the past decade.

Trailing Returns Updated 06.30.2014
Year to date 4.5%
1 Year 5.1%
3 Years (Annualized) 3.0%
5 Years (Annualized) 4.4%
10 Years (Annualized) 5.1%

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Summary

In what has turned out to be quite the dysfunctional family, Ginnie Mae can be thought of as the quiet sister to Fannie Mae and Freddie Mac. That's exactly why Vanguard GNMA's managers like her so much.

As of July 03, 2014, the fund has assets totaling $26.34 billion. Its portfolio consists primarily of bonds issued by the Government National Mortgage Association, or Ginnie Mae.

While Fannie and Freddie grabbed headlines in 2008, Vanguard GNMA hunkered down with Ginnie bonds, pursuing a strategy that made it one of the few mutual funds to experience positive returns that year. Notably, the fund had no exposure to corporate bonds or nongovernment mortgage-backed securities. The fund continued to perform solidly in 2009 thanks in large part to its conservative strategy, which is generally to avoid prepayment risk. This risk is highest when interest rates are low and people refinance their homes, meaning that bonds do not grow to maturity. It has also stayed away from credit risk, even in its investments outside of Ginnie Mae. The fund has returned 5.09 percent over the past year and 3.00 percent over the past three years.

Historically, this fund has been seen as a safe option. That's because Ginnie Mae doesn't purchase mortgages directly; instead, it insures bundles of loans backed by the Federal Housing Administration or the Department of Veterans Affairs. Such loans—unlike Fannie and Freddie mortgages—have always been supported by the full faith and credit of the United States government, much like supersafe treasuries. As with other forms of government-backed holdings, investors tend to favor GNMA funds during specific market conditions. The funds, for example, typically perform best during periods of high interest rates. The fund has returned 4.45 percent over the past five years and 5.09 percent over the past decade.

Investment Strategy

Management takes a fairly tame approach to investing. Says Morningstar, "Managers Thomas Pappas and Michael Garrett avoid exotic mortgage-backed fare, and they don't make big interest-rate bets, either." The fund doesn't have specific maturity guidelines, but its prospectus indicates that its dollar-weighted average maturity will generally be between three and 10 years.

Role in Portfolio

Morningstar calls it a "core" investment.

Management

Managers Thomas Pappas and Michael Garrett take a research-heavy and safe approach.

Fees

Vanguard GNMA Fund has an expense ratio of 0.11 percent.

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Risk

The structure of Ginnie Mae makes this fund a relatively safe pick.

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Fund Opinions

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 3 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2014-06-11

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 3 for one year, 3 for five years, and 3 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2014-06-11

The fund's Value Line Risk Rank, a measure of volatility, is 2 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2014-06-11

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying, "The family's mutual ownership structure helps it offer low fees and keep investor interests paramount. A blemish-free regulatory record, and loyal fund owners and employees also help make this a trustworthy fund."

Morningstar 2010-02-17

In the annual Lipper/Barron's Fund Families Survey for 2009, Vanguard ranks 40th out of 61 fund families surveyed.

2010-02-17

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying, "The family's mutual ownership structure helps it offer low fees and keep investor interests paramount. A blemish-free regulatory record, and loyal fund owners and employees also help make this a trustworthy fund."

Morningstar 2010-02-17

In the annual Lipper/Barron's Fund Families Survey for 2009, Vanguard ranks 40th out of 61 fund families surveyed.

2010-02-17