There are several reasons for the long-term performance success of Vanguard Group’s GNMA Fund Investor Shares,  but one of the simplest is this: It doesn’t have high fees weighing down its returns.

“Our expense ratio is a source of strength relative to other funds,” said manager Michael Garrett. “And we don’t have to try to make up that expense by taking a more aggressive stance.”

The fund’s expense ratio, of just 23 basis points, is 77% lower than that aof its peers, according to Lipper, Inc. That has helped it gather about $38 billion of assets. Its performance hasn’t hurt either: Late in December 2010, the fund’s 6.55% return for the year to date was walloping the returns of its peers by 1.24%, according to Morningstar, Inc.

The fund’s returns have been steady, averaging 6.11% over five years. And it has a yield of 3.17% to boot.

But beating its category is nothing new for Vanguard GNMA, a 30-year-old fund that is subadvised by Wellington Management Co., LLP, in Boston. In the final days of 2010, the fund was on track to beat its Morningstar category average for the 12th straight year. A $10,000 investment in the fund back in 1999 would be worth nearly double that--$19,841—now.

The fund aims to provide a moderate level of current income. It normally invests 80% or more of its assets in government National Mortgage Association certificates. The average maturity of the bonds in the fund was recently 2.7 years, according to Vanguard.

The investment approach of the fund could be described as plain vanilla,  said Morningstar fixed-income analyst Miriam Sjoblom. “A lot of their peers have to get more adventurous because of their higher expense ratios,” she said. “But low fees free (the Vanguard GNMA team) up to focus on basics.”

Garrett and company use good bottom-up fundamental analysis to determine whether investments are priced attractively, she said.

“They don’t take a lot of risk, they really play it pretty straight down the middle,” said Sjoblom.

More than 97% of the fund’s holdings recently were in Ginnie Maes and other mortgage-backed securities. One hundred percent of its securities were rated Aaa.

One strength of Vanguard’s Ginnie Mae fund is the long tenure of its managers. Garrett joined the fund 11 years ago, and he is only the fourth manager since the fund’s inception in 1981.

Likewise, the way the managers go about their job has changed little over the years, said Garrett. They think about the current macroeconomic environment and what that means for the mortgage market. They then think about which sectors in the mortgage market are likely to do well or do poorly based on the environment.

Then they choose securities accordingly, explained Garrett. As for risk management, much of it has been a matter of Garrett and his team — and their predecessors — weighing their views and assumptions against those of their colleagues.

“We have bond and equity managers work together,” he explains. “That challenges your view, and gives you a more well-rounded view.”

The fund does have a couple of drawbacks. Its initial investment minimum is $3,000. Investors concerned about turnover should note that its annual rate is 272%. That rate is in line with its peers, however.

Interest rates have lately been volatile, and historically that has led to prepayment risk, a challenge for the management of funds that invest in mortgages. When rates have fallen in the past, many homeowners have refinanced. That can cost years of interest payments to investors who invest in pools that contain those mortgages.

In recent months, however, refinancings have been relatively few. That’s in part because the value of many homes has fallen as the housing market remains mired in its long funk. What’s more, in the wake of the mortgage meltdown, banks have applied stricter refinancing criteria, limiting the pool of potential customers. In investor lingo, the mortgage market has become less sensitive to prepayment.

Armed with that knowledge, Garrett and his team have been working to identify bargain investments.

“To help us outperform, we would look for securities that are underpriced relative to the (mortgagees’) inability to refinance,” he said.