Jeffrey Gundlach’s first full year as a mutual fund manager was by far his worst.

It was 1994, and some of the mortgage derivatives Gundlach owned were “slaughtered” when interest rates rose sharply, according to Howard Marks, who worked with the bond manager at TCW Group at the time. The TCW Total Return Bond Fund lost 6.2 percent and the young money manager got a schooling in risk control that has guided the rest of his career, said Marks.

“He learned that you don’t bet the ranch,” said Marks, the co-founder of Oaktree Capital Group LLC, which owns 20 percent of Gundlach’s firm, Los Angeles-based DoubleLine Capital, after providing startup cash. “Over time, that has helped him go from a smart guy to an excellent manager.”

Gundlach’s main mutual fund, the $45.6 billion DoubleLine Total Return Bond Fund, is at the top of its class as it marks its fifth anniversary on April 6. It’s bested all 235 competitors in the U.S. intermediate bond fund category since inception, according to Morningstar Inc. In the previous five years, the TCW Total Return Bond Fund then-managed by Gundlach ranked second.

Gundlach, 55, and his co-manager at both firms, Philip Barach, achieved the results with timely calls on the direction of interest rates and with a shifting mix of mortgage-backed securities that allowed them to beat the competition both in periods of rising and falling rates.

“This is a dynamic process where we move things around,” Gundlach said last week in a telephone interview. “You can’t do this at home.”

TCW Clash

Gundlach founded DoubleLine with Barach in December 2009 after losing an internal struggle for leadership at Los Angeles-based TCW.

He built his reputation as a top-ranked mortgage investor at TCW, where he ran the Total Return Bond Fund for 16 years. Gundlach has beaten the benchmark Barclays U.S. Aggregate Index in 17 of the last 22 years between the two funds, according to data compiled by Bloomberg.

“He has shown a tremendous degree of consistency,” said Joshua Emanuel, chief investment officer at Elements Financial Group, a money manager based in Irvine, California, which oversees $500 million and has invested in DoubleLine funds.