Instead, he and his team of analysts prefer to take a ground-level approach by methodically plodding through the vast mortgage-backed bond market to find securities with risk and prepayment characteristics that fit their strategy.

Sixty-three percent of the fund's assets are in mortgage-backed bonds, which is nearly twice the Morningstar category average. Only 13% of the fund is in Treasury securities, which is just half the weighting used in its benchmark, the Barclays Capital U.S. Aggregate Bond Index. The rest is in a mix of corporate bonds and cash.

To help limit risk, Swanson invests in more than 2,200 securities and keeps well under 10% of the fund's assets in the top ten holdings. By contrast, the average bond fund has less than half that number of securities and keeps more than 40% of its assets in the top ten positions. "We don't have any big positions in one name because the goal isn't to hit a home run with one particular credit," he says.

Indeed, consistency and a remarkable lack of surprises have been the fund's hallmarks since inception, rather than its outperformance. Over the last three years, its net asset value per share has hovered at close to $10. In the last year, a volatile time for the bond market, its net asset value has moved in a tight range, from a low of $10.25 in October 2008 to a high of $10.90 in May 2009.

"The result has been a smooth, profitable ride for shareholders," notes Morningstar analyst Greg Brown in a recent report. "The fund's ten- and 15-year returns are among the best in the category. And its long-term risk measures, such as standard deviation, are meaningfully better than most peers'. This mutual fund earns our endorsement."

Given the wobbliness of the real estate market and the threat of rising interest rates, it would likely be challenging for any portfolio manager to continue inspiring confidence in bond investors. But over his 17-year tenure at the fund, Swanson has proved adept at battling difficult market conditions by analyzing and pegging duration and quality and by uncovering the characteristics that make each bond unique. The goal is to meld together securities with different maturities to achieve a portfolio duration similar to that of the benchmark, which is currently about four years.

Swanson also generally steers clear of bonds when it is unlikely that the borrowers will make prepayments on their debt in a refinancing. Such bonds would likely have a very long average life, and thus would be hit particularly hard if rates went up. The securities in his danger zone include those bonds derived from newly issued mortgages with low rates, because new home owners are unlikely to refinance. It's also unlikely that borrowers would make prepayments on or refinance bonds backed by low-rate mortgages with low remaining balances-because the cost of refinancing would likely be higher than the savings for the home owners.

Swanson furthermore looks at geographic locations, often drilling down to the ZIP code, and aims for diversity. In New York, for example, prepayments are less likely than in many other states because refinancing costs tend to be higher. Loan-to-value ratios are also critical, since someone with a mortgage roughly equivalent to the value of a house is more likely to face foreclosure than a home owner with ample equity.

While he's melding together bonds of varying duration, Swanson keeps an eye on mortgage interest rate trends. He believes the slow housing market is likely to keep a lid on any significant rate increases in the near future. "If mortgage rates rose to 8%, the housing market could sink into a depression-style scenario," he says. "The government gets that the mortgage market needs to be functional for the economy to improve."

The fund also has a presence in corporate securities. The corporate market began the year on a sour note but began improving in April as the economy showed signs of life and high yields attracted investors. Swanson took advantage of wide yield spreads earlier in the year to buy a mix of bonds issued by banks, utilities and industrial companies. Now that the risk premium has dwindled, individual security selection matters more than it did earlier in the year, he says.