YOUNGER BOGLE AIMS TO TURN INFANT FUND INTO A TODDLER: VANGUARD FOUNDER’S SON SAILING ON OWN WITH SMALL-CAP OFFERING

John C. Bogle Jr. has nothing if not name recognition.

His father founded Vanguard Group nearly 25 years ago and turned it into a mutual fund operation second only to Fidelity Investments with $500 billion under management,

But the younger Mr. Bogle, who shares his father’s reputation for being confident and able to make money, is determined not to stand in anyone’s shadow.

A few weeks ago, he opened the doors of Bogle Investment Management. The Wellesley, Mass.-based company launched its first mutual fund 10 days ago and is busily gathering assets from individual and institutional investors.

When the younger Mr. Bogle abruptly resigned from Cambridge, Mass., quant shop Numeric Investors LP last February, the industry scuttlebutt was that he would turn up at Vanguard. After all, dad was barreling toward the mutual’s mandatory retirement age and junior seemed as likely a successor as anyone.

But John Jr., 39, had different plans.

His ambition isn’t to create a money management giant as his father has done – at least not yet. It is to run $400 million to $500 million in five years. Also unlike his father, Mr. Bogle isn’t likely to become a champion of low costs. His new no-load mutual fund, the Bogle Small Cap Growth Fund, comes with an annual expense ratio of 1.35%, compared to 1.24% for the average similarly managed fund. In addition, Mr. Bogle is a quant-based active manager while his father espouses index funds.

“It’s easier to build a successful investment process from scratch than it is to try and improve on an existing process,” says Mr. Bogle, who started managing money at State Street Global Advisors the day the stock market crashed in October 1987. “The fact that we are starting with no assets and have complete control over how much money we will bring in will give us the best chance for success.”

Despite his marquee name and record of crushing rivals in picking small cap stocks (N/I Numeric Investors Micro Cap earned annualized returns of 11.04% from its June 1996 inception through Jan. 31, vs. 6.59% for the average small-cap growth fund), Mr. Bogle faces plenty of obstacles – the biggest of which may ultimately prove to be his ego.

Described by colleagues as “brash” or “autocratic,” Mr. Bogle has a history of not getting along with employers. His recent departure from Numeric came amid reports that he clashed with Langdon B. Wheeler, the firm’s founder. And, in 1996, he quit as the subadviser to two of the Quantitative Group’s funds because of “philosophical differences.”

reputation a concern

Even one of Mr. Bogle’s new partners, Keith Hartt, admits to having been initially leery of Mr. Bogle’s reputation.

“It was definitely very much a concern,” he says. “I’m still waiting for that first bit of stubbornness or some exhibit of being headstrong, but it hasn’t happened yet.”

There are those that are still worried.

“I call him the itinerant fund manager,” says financial planner Ross Levin, who is president of Accredited Investors Inc., a financial planning firm in Minneapolis. “He moves around much too frequently for my tastes.”

While Mr. Levin moved his money from Quantitative to Numeric right along with Mr. Bogle, he is taking a more cautious approach with regard to Mr. Bogle’s new venture. “I’ll probably put some new money with him, but I’m keeping money at Numeric as well.”

For his part, Mr. Bogle concedes that he probably is intractable. “I have a belief in what I am doing,” he says. “But if you asked any single person whether I was difficult to work with, I believe they’d say ‘no.’”

Both Numeric and Quantitative declined to comment.

Ironically, it was personality clashes that led Wellington Management Co. to fire Bogle Sr. as chief executive 25 years ago.

The good news is that John Jr. isn’t likely to turn his back on his latest venture any time soon. That’s because, as the company’s founder, he is much more rooted to it. “You don’t often see a manager leave his, or her, own firm, unless they are planning to retire,” says Russell Kinnell, an analyst at Morningstar Inc., the mutual fund tracker in Chicago.

Mr. Bogle, who has a passion for cooking, thought long and hard before launching his new business. He met with “dozens and dozens” of prospective partners before picking the three that he has: Mr. Hartt, a PhD statistician and trader with six years in Fidelity Investment’s quant group; Lisa LaFrance, an investment officer at Strategic Investment Management; and Britt Martino, a former client service executive at Morgan Stanley Dean Witter & Co.

Throughout the summer, Mr. Bogle and Mr. Hartt met regularly in the unfinished basement of Mr. Bogle’s Wellesley home (amid a treadmill and piles of toys) to develop the model for the company’s investment strategy.

From a universe of 1,100 domestic stocks with market capitalizations of $1.6 billion or less, Mr. Bogle intends to choose up to150 at any given time. His new computer model is built to pick stocks based on dozens of criteria, including profitability and dividend yield.

But Mr. Bogle aims to dig deeper than other quant models. By factoring into the equation such characteristics as insider trading and the extent to which accounting rules are being stretched to meet earnings expectations, he hopes to get a leg up on competitors.

“We’ll be looking at companies quantitatively in a far more fundamental way than we have in the past,” Mr. Bogle says.

turnover new leaf

He also aims to keep turnover to between 150% and 180%. That’s way below the 300% turnover he was known for at Numeric. The fund will also close to new investors once it reaches between $150 million and $200 million – which will allow him to keep market impact, a part of trading costs, to a minimum.

Along with the mutual fund, Mr. Bogle intends to manage money for institutional investors and for separate accounts of $20 million or more.

He also plans to launch other mutual funds, including a series of tax-managed funds.

“Managing portfolios is something I am very good at and really enjoy doing,” he says.

“I think it’s rare to find someone who enjoys doing something they do so well.”