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Bond King: Five years on, Jeff Gundlach's DoubleLine thrives

Jeffrey Gundlach, CEO of DoubleLine Capital, is betting that the best way to play the coming rate hikes is by holding lots of mortgages.
Harriet Taylor | CNBC
Jeffrey Gundlach, CEO of DoubleLine Capital, is betting that the best way to play the coming rate hikes is by holding lots of mortgages.

Five years after launching his own investment firm, Jeff Gundlach is on top of the bond world.

Gundlach, famously fired by Trust Company of the West in December 2009, took dozens of employees with him and launched DoubleLine Capital that same month.

His flagship DoubleLine Total Return Bond Fund—launched in April 2010 amidst a nasty legal battle with TCW—has grown to manage $46 billion. The fund has posted stronger returns than every other U.S. intermediate bond fund since its inception.

Add products like a stock-focused mutual fund, mortgage-backed security-heavy hedge fund strategies, and a fixed income exchange-traded fund, and overall assets have rocketed to $73 billion as of March 31.

"Thanks to the investor and advisor communities, and the hard work by our risk management and investment teams, DoubleLine has enjoyed extraordinary growth over the last 5 years," Loren Fleckenstein, an analyst at the Los Angeles-based firm, told CNBC.com.

Read MoreGundlach's DoubleLine Funds post 14th month of net inflows

The success has been driven by outspoken Gundlach's big investment calls.

In 2011, he predicted that U.S. Treasurys would rally, placing him in disagreement with then-"Bond King" Bill Gross of Pimco (Gross has since decamped to Janus Capital Group and manages far less assets). Interest rates indeed fell, and DoubleLine benefited from related gains in government mortgage-backed securities over the year.

More recently, he correctly anticipated that government bond yields would fall in 2014, a contrarian view. They did. And in June 2014, Gundlach said the U.S. dollar would "break out" in value versus other currencies," one of the major market moves since then.

Thanks to those calls and others, Gundlach's flagship bond fund, co-managed with Philip Barach, has produced average annual returns of 8.39 percent over its first five years, compared to a 4.54 percent for the Barclays U.S. Aggregate Index.

Looking forward, Gundlach believes that the yield on 10-year U.S. Treasurys will end the year where they began. He also remains bullish on the U.S. dollar in the long term, even if there will be volatility in between. Gundlach is also cautious on stocks given high valuations compared to earnings.

Finally, he thinks most sectors in the bond market are fairly valued, with the exception of investment grade corporate credit, which is overvalued.

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Investors like those views and DoubleLine's track record, adding $5.7 billion net to the firm's open-ended funds over the first quarter.

Despite the success, Gundlach's strategy isn't to grow forever. He has said DoubleLine will close its main bond fund to new investors if assets continue to grow at their current rapid pace.

"We've sought to manage our growth in a prudent fashion, carefully diversifying into new vehicles and strategies in line with expertise," Fleckenstein said.