It was fun, in the late 1990s, to watch the asset-gathering league tables. The two biggest contenders were Fidelity’s Magellan Fund and Vanguard’s Indexed S&P 500 Fund. Both, at the time, were nearing $100 million in assets. The Magellan Fund had seen stellar performance under the guidance of Peter Lynch, and its assets soared from a few hundred million to $50 billion.

Vanguard won that race in 2000. Not only did it boast the world’s largest mutual fund, it eventually bested Fidelity as the world’s largest mutual fund company, although that took another decade.

In the end, Fidelity, too, embraced indexing, with its own menu of index funds.

Does that make the case for passive investing over active investing? Not necessarily. And in Canada, it’s only been in the past four or five years that indexing has really blossomed. In part, that’s because the banks had sewn up the plain vanilla indexing turf, which meant a limited range of products covering Canadian, U.S. and global equities.

Things have changed. Now there’s a proliferation of products and providers in Canada. And the passive mantra has been increasingly replaced by the phrase “cost matters.”

That’s just one quirk in the rise of ETFs. Vanguard started as an index fund company. It branched out into exchange-traded funds, to the dismay of Vanguard founder Jack Bogle, who thinks that ETFs will lead to more trading, rather than a strict buy-and-hold discipline. On the other hand, Fidelity, in the U.S., is aping Vanguard by launching its own, actively managed ETFs.

Here’s another quirk: The world’s largest mutual fund is no longer led by either Fidelity or Vanguard. And it’s not an equity fund.

That distinction goes to PIMCO’s Total Return Fund, which has $278 billion in assets. Guided by Bill Gross, who is notably bearish on both equities and U.S. Treasuries, the fund has beat 97% of its competitors over the past five years, according to Bloomberg Businessweek.

Oddly, it has a competitor: its actively managed ETF version. Inaugurated March 1, 2012, the ETF has yielded 10% compared to 6.5% for the mutual fund.

ETFs have made the investing universe a very interesting place.

Scot Blythe is a Toronto-based financial writer.

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