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Vanguard overtakes Pimco as world's largest mutual fund

Monday, 4 Nov 2013 | 8:40 PM ET
Bill Gross, co-chief investment officer of Pimco
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Bill Gross, co-chief investment officer of Pimco

Pimco's flagship bond product has lost its status as the world's largest mutual fund, Morningstar data has shown.

The $248 billion Pimco Total Return fund was overtaken by the Vanguard Total Stock Market Index fund, a product which tracks the entire U.S. equity market, in October, according to the funds data provider.

The Vanguard fund had $288 billion of assets at the end of October.

(Read More: Wealthy didn't 'build that,' they 'rode it,' says Gross)

The Pimco Total Return fund, which is run by renowned bond manager Bill Gross, saw its sixth consecutive month of outflows in October, as investors withdrew $4.4 billion of net assets, bringing total outflows to $33.2 billion year-to-date.

The Pimco product has lagged the sector of late, returning 0.9 percent in October, compared to a 1 percent average return by U.S. intermediate term bond funds - those with maturity levels of 10 to 15 years - Morningstar data showed. The Pimco fund has lost 1.29 percent over the past year, compared to an average 0.71 percent loss.

Investors' healthy appetite for stocks, which has seen the S&P 500 power 24 percent higher this year, has dampened demand for fixed income investments in general.

(Read More: Carl Icahn fires back at Bill Gross on Twitter)

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Concern over the end of the U.S. Federal Reserve's quantitative easing program, which is expected to eventually lead to higher interest rates, has made bond products less attractive to investors.

(Read More: Gross: The stock market and asset prices are 'bubbly')

"At a macro level, this reflects the rotation away from bonds," said Rob Aspin, head of equity strategy at wealth management group for Standard Chartered bank.

"The bond market is in a thirty-year cycle, and its bull market started in 1980 so we should be close to the bottom now. We expect yields [on Treasurys] to continue rising over the longer term and expect the US 10-year [yield] to hit around 3 percent over 6 months and approximately 3.5 percent 12 months out," he added.

Morningstar data also showed that global appetite for fixed income has waned over the past year.

Year-to-date, fixed income funds have attracted roughly $150 billion worth of net flows (the amount of inflows minus redemptions), while their equity counterparts have attracted around $219 billion on a global scale.

Pimco were not immediately available for comment.

— By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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