Bill Gross no longer runs the world’s largest mutual fund.

Gross’ Pimco Total Return Fund has shrunk by $37.5 billion since the start of this year, ending last month with $247.9 billion in assets, according to data provided by Pacific Investment Management Co. in Newport Beach, California, and compiled by Bloomberg.

The Vanguard Total Stock Market Index Fund ended October with $251 billion, Vanguard Group Inc. spokesman John Woerth wrote in an e-mail, taking the top spot.

Pimco Total Return, which became the biggest mutual fund in 2008, is on track to have the worst redemptions ever this year, losing $28 billion through Sept. 30, according to estimates from Morningstar Inc. in Chicago.

Investors are pulling money out of traditional fixed-income funds in anticipation that the three-decade rally in bonds is ending, and adding to stock funds, particularly low-cost index funds, as the bull market in U.S. equities is in its fifth year.

“This is emblematic of the surge in popularity of index funds,” Woerth, whose firm is based in Valley Forge, Pennsylvania, wrote in an e-mail.

Michael Reid, a spokesman for Newport Beach, California-based Pacific Investment Management Co., declined to comment in a telephone interview. Gross and Mohamed El-Erian, the co-chief investment officers of Pimco, didn’t return e-mailed requests for comment.

Bond Redemptions

Investors started to flee bonds this year on concerns that the Federal Reserve will taper its bond-buying program, which could lead to higher interest rates and a decline in fixed-income prices. Stocks have rallied on rising corporate earnings and forecasts that the U.S. economy will accelerate in 2014.

U.S. bond mutual funds saw net redemptions of $117 billion in the four months through September, while stock funds received $35 billion, according to the Investment Company Institute in Washington.

Gross’ fund more than doubled in size between 2008 and 2012 as investors deserted stock funds after the financial crisis for the perceived safety of bonds. The fund attracted $50.1 billion in 2009 and $22.6 billion in 2012, according to data from Chicago-based Morningstar Inc.

Pimco Total Return gained 4.8 percent in 2008 as Gross sidestepped the collapse of the housing market. The Standard & Poor’s 500 Index fell 37 percent that year, including reinvested dividends.

The fund trailed 74 percent of rivals in 2011 as Gross missed a rally in Treasuries. Gross, in a letter to clients, called the year “a stinker.”

Trailing Peers

Pimco Total Return lagged behind 56 percent of peers this year and beat 77 percent over the past five years, according to data compiled by Bloomberg.

The Vanguard fund was buoyed by a 27 percent return in the CRSP US Total Market Index this year, a benchmark that includes stocks of different market capitalizations.

Vanguard, the biggest U.S. mutual-fund firm, with almost $2.4 trillion in U.S. fund assets, has grown as the champion of indexing. Index funds represent 63 percent of Vanguard assets, Woerth said. Company founder John Bogle argued that most investors can’t beat the market and advised them to buy low-cost funds that track indexes. Vanguard also offers funds in which the managers pick stocks and bonds.

Vanguard Total Stock Market Index Fund more than tripled in size since the end of 2008.

Indexing has also grown with the popularity of exchange-traded funds, nearly all of which mimic indexes and can be traded throughout the day like stocks. Vanguard is the third largest U.S. provider of ETFs, behind Boston-based State Street Corp. and New York-based BlackRock Inc., Morningstar data show.