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Is VFIIX a Strong Bond Fund Right Now?

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On the lookout for a Government Mortgage - Intermediate fund? Starting with Vanguard GNMA Investor (VFIIX - Free Report) is one possibility. VFIIX possesses a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.


VFIIX is one of many Government Mortgage - Intermediate funds to choose from. Government Mortgage - Intermediate funds focus on the mortgage-backed securities (MBS) market. This market takes mortgages, packages them together, and sells off the pooled securities to investors. This particular category focuses on MBS that usually have at least three years to maturity, but less than 10, giving a medium risk and yield profile to funds here.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VFIIX. The Vanguard GNMA Investor made its debut in June of 1980 and VFIIX has managed to accumulate roughly $6.71 billion in assets, as of the most recently available information. The fund is currently managed by Michael Garrett who has been in charge of the fund since June of 2010.


Investors naturally seek funds with strong performance. VFIIX has a 5-year annualized total return of 2.03% and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 1.04%, which places it in the top third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. VFIIX's standard deviation over the past three years is 2.12% compared to the category average of 10.04%. The fund's standard deviation over the past 5 years is 2.07% compared to the category average of 1.81%. This makes the fund more volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a given bond's interest rate sensitivity, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.

If you believe interest rates will rise, this is an important factor to look at. VFIIX has a modified duration of 3.96, which suggests that the fund will decline 3.96% for every hundred-basis-point increase in interest rates.


Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 3.63% means that a $10,000 investment should result in a yearly payout of $363.

If you are looking for a strong level of current income, a higher coupon is a good choice, though it could pose a reinvestment risk; these risks can occur if rates are lower in the future when compared to the initial purchase date of the bond.

Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks. VFIIX carries a beta of 0.69, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.23, which measures performance on a risk-adjusted basis.


Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, VFIIX is a no load fund. It has an expense ratio of 0.21% compared to the category average of 1.47%. VFIIX is actually cheaper than its peers when you consider factors like cost.

Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard GNMA Investor ( VFIIX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

Your research on the Government Mortgage - Intermediate segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to to see the additional features we offer as well for additional information. For analysis of the rest of your portfolio, make sure to visit for our full suite of tools which will help you investigate all of your stocks and funds in one place.

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