During a speech in January 1992, John C. Bogle Sr., founder of Vanguard Group, loftily predicted that, by the turn of the century, the then-US$6.5 billion-in-assets Vanguard 500 Index Fund would be the world’s largest mutual fund, displacing Fidelity Magellan, then three times bigger.

His prophecy was off — but maybe not by much, today’s Wall Street Journal reports.

Barring unusually strong investment gains by Magellan, the flagship Vanguard portfolio is expected to pass Magellan as the biggest of the big in a matter of weeks — or maybe even days.

On Friday, the two funds were in a virtual dead heat, separated by tens of millions of dollars, pocket change for US$100 billion-plus funds. On Monday, a rallying market aided Magellan more than it did the index fund, and yesterday, in a declining market, Magellan continued to hold the Vanguard portfolio at bay. But Vanguard 500 is boosted daily by stronger inflows of net new investment money, while Magellan is closed to most new investors.

Last night’s score: Magellan, about US$103.5 billion, Vanguard, about US$103 billion.

In ending Magellan’s 11-year reign as the biggest stock or bond mutual fund, Vanguard 500 would snare an enviable set of bragging rights. But a changing of the guard would have significance for the mutual-fund world far beyond any immediate advertisements that Vanguard — a low-cost operation that is famously low key when it comes to self-promotion — might choose to run. The Vanguard portfolio’s ascendancy reflects a gigantic shift in investment strategy by millions of Americans.

Merely mimicking the movements of the benchmark Standard & Poor’s 500 big-company stock index, Vanguard 500 has delivered stellar results in recent years — 28%-plus annualized gains during the past five years — far outpacing the average mutual fund headed by a stock picker. By putting so many stock pickers to shame, Vanguard 500 helped spawn dozens of index funds — and many more are on the way — tracking nearly everything.

Neither Magellan nor Vanguard 500 is likely to sustain a compelling lead in asset size anytime soon. While Vanguard is aided by $1 billion a month in net new cash, market-beating investment performance by Magellan can cancel out Vanguard’s new-cash advantage — although the performance will have to be smashing to put the crossover point off more than a few months.

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