The Vanguard Total Stock Market Fund has overtaken the Total Return Fund of Newport, Calif.-based Pacific Investment Management (Pimco) as the world's largest retail fund as global investors shun bond-based funds for equity funds.
"This is emblematic of the surge in popularity of index funds," said Vanguard spokesman John Woerth to PI Online.
Pimco’s Total Return Fund has lost 1 percent of its total value this year. Assets dropped to $250 billion in October after investors pulled out $30 billion. Meanwhile, the Vanguard Total Stock Market Index Fund has $251 billion in assets, after gaining $65 billion this year -- 25 percent of its total value.
Pimco, which was co-founded by bond manager Bill Gross, manages about $1.97 trillion in assets.
Pimco's Total Return Fund gained investors during the years shortly after the financial crisis when bonds were a safer option than stocks. It was all going well until May 2013, when the Federal Reserve announced plans to begin tapering its $85 million monthly bond-buying program, which would drive interest rates up and caused a decline in fixed-income security prices.
Pimco investors have been withdrawing their funds for the past six months, reaching a record high monthly amount of $4 billion in October. Year to date, total outflows are roughly $33 billion.
Since May, the yield on U.S. Treasury yields rose to more than 3 percent in September -- up from just 1.62 percent in early May -- and the price of Treasurys has fallen accordingly.
Meanwhile, the S&P 500 stock index has increased 23.84 percent this year.
The Vanguard Total Stock Market Index Fund has become more popular since it tracks the entire U.S. equity market. Since 2008, it has gained 171 percent.
The fund owns more than 3,600 stocks and has gained $65 billion in assets this year. Its five largest holdings are in Apple (NASDAQ: AAPL), Exxon Mobil (NYSE: EOM), Microsoft NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ) and General Electric (NYSE:GE).
Pimco Total Return became the world's largest mutual fund in 2008, overtaking the American Funds Growth Fund of America.