An Educational Guide
How we earn your confidence
2015
Our investment philosophy
Contents 1 | In times like these 2 | Investment philosophy 4 | Portfolio management 6 | Portfolio construction 7 | Sector overview:
Putting it all together 13 | Earning your confidence
Note: Numbers may not add due to rounding.
1
Strength and stability
Our continued financial strength is a critical attribute
supporting the value of our products and services. Our clients
trust us with their long-term financial protection, and effective
investment management is an essential factor supporting that
trust. As recent history has confirmed, investment markets can
be volatile, and it is reassuring for our policyowners and clients
to know that they can depend on MassMutual products to help
provide for their financial security.
Mutuality
As a mutual life insurance company, we do not have
shareholders. We operate for the benefit of our members
and participating policyowners. We are able to take a long-
term view when investing and focus less on short-term
fluctuations in asset values. We are long-term investors
concerned with meeting commitments that stretch far into
the future.
Diversity
Our investment management expertise, which is integral to
the success of our company and our products, is primarily
drawn from our investment subsidiaries: Babson Capital
Management LLC (Babson Capital), which manages fixed
income and equity assets; Cornerstone Real Estate Advisers
LLC (Cornerstone), a manager and adviser of commercial
real estate equity and debt; OppenheimerFunds, Inc., one of
the largest asset management companies in the United States;
and Baring Asset Management Limited, an equity and fixed
income manager whose global investment expertise and reach
complement those of MassMutual’s other investment entities.
You should be confident that the company providing you
with financial services is strong and will be there to help you,
not just now but well into the future. MassMutual offers that
confidence so you can worry less about the future and spend
more time enjoying the present. A key reason you can trust
MassMutual is our approach to investing.
In times like these confidence matters most
* A participating policyowner is typically an owner of an individual participating policy issued by MassMutual who benefits from the company’s mutual status by being eligible to share in any annual dividends, if declared. Dividends are not guaranteed.
Built on more than a century-and-a-half of financial strength and customer service, Massachusetts Mutual Life Insurance Company (MassMutual) is a leading mutual life insurance company headquartered in Springfield, MA. We operate for the benefit of our members and participating policyowners* and offer a range of quality financial products and solutions, including life insurance, disability income insurance, long-term care insurance, annuities and retirement/401(k) plan services.
Ratings are for Massachusetts Mutual Life Insurance Company and its subsidiaries: C.M. Life Insurance Company and MML Bay State Life Insurance Company. Ratings as of 05/01/15. Ratings are subject to change.
We have financial strength ratings that are among the highest in the industry.
A.M. Best Company . . . . . . . . . . . . . . . . . . . . . . . . . A++ (Superior) top category of 15
Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . AA+ (Very Strong) second category of 21
Moody’s Investors Service . . . . . . . . . . . . . . . . . .Aa2 (Excellent) third category of 21
Standard & Poor’s . . . . . . . . . . . . . . . . . . . . . . . AA+ (Very Strong) second category of 21
Rating Massachusetts Mutual Life Insurance Company and subsidiary companies
2
In our pursuit of consistent long-term returns, we use a
two-pronged approach to manage the GIA.
• A top-down process, where we work to identify the
global economic and market factors that will drive
returns across asset classes and seek to optimize the
portfolio allocation across these classes
• A bottom-up approach, where our investment
professionals identify individual investments that
offer the appropriate level of risk/reward relative to
their alternatives
Through the regular application of these two elements,
we seek to position the portfolio to capture evolving
opportunities, while remaining invested across a variety
of asset classes to incorporate a significant level of
risk diversification.
We believe that one cannot consistently predict the level
or direction of markets. As a result, diversification is a
prudent, appropriate response to managing risks through
market fluctuations.
Diversification within and across asset classes increases the
opportunity to capture positive returns across issuers and
sectors while minimizing the impact of underperformance.
Other components of our approach include:
• Through rigorous analysis, our investment
professionals use a relative value approach to security
selection, seeking to buy undervalued securities
and sectors while selling those more fully valued. A
regular assessment of value allows us to capitalize on
market inefficiencies in the valuation of securities,
sectors, and asset classes
• We rely upon experienced teams of specialists
focused on a range of sectors to help manage the
GIA. Our common goal is the success of the overall
enterprise rather than the success of specific sectors,
resulting in a collaborative approach where objective
analysis produces optimal long-term investment
performance
• We regularly assess the risk and return potential of
developing asset classes, to identify opportunities to
enhance the long-term performance of the GIA
• In assessing investment opportunities, we distill the
numerous factors that can impact value down to basic,
understandable concepts to facilitate comparison.
It pays to be skeptical of opportunities that are
unrealistic or not credible
• Ultimately our objective is to profitably grow the GIA
for the benefit of the policyowners. We believe that
the continual review, refinement and application of
our investment process will support that objective
Investment philosophy
MassMutual and Babson Capital, the primary investment adviser for MassMutual’s General Investment Account (GIA), share the same investment philosophy relative to the investment of policyowner assets. This philosophy provides the framework for GIA portfolio construction and investment decision-making. The following are the keys to our approach.
We seek to generate long-term, stable investment performance to support MassMutual’s financial strength and ability to meet its financial commitment to policyowners.
3
Total GIA assets* – $143 billion as of December 31, 2014
Public Bonds
Private Bonds
Equity
Mortgage Loans
Policy Loans
Real Estate Equities
Partnerships and LLCs
Short Terms and Cash
Other Invested Assets
Other GIA Assets
36%
19%
1%14% 8%
1%
5% 2%
11%
3%
1 Includes Rule 144A registered securities2 Includes unaffiliated preferred and common equity3 Includes $1,986 million of residential mortgage pools
4 Includes $168 million of properties exclusively occupied by the Company5 Schedule BA securities6 Includes common stock of subsidiaries and affiliates, derivatives and
receivables for securities
* Note: The figures presented are consolidated financial information for Massachusetts Mutual Life Insurance Company and its U.S.-domiciled life insurance subsidiaries (C.M. Life Insurance Company and MML Bay State Life Insurance Company) at the end of 2014.
Public Bonds1 – 36%
Private Bonds – 19%
Equity2 – 1%
Mortgage Loans3 – 14%
Policy Loans – 8%
Real Estate Equities4 – 1%
Partnerships and LLCs5 – 5%
Short Terms and Cash – 2%
Other Invested Assets6 – 11%
Other GIA Assets – 3%
4
Overview
The GIA primarily consists of assets that support our
insurance and retirement income products. We organize the
assets into smaller portfolios to better manage the assets
relative to the liabilities. The nature of the product liabilities
serves as the foundation for the investment policies that are
developed for each portfolio. An investment policy provides
the general framework for how a portfolio is constructed
and managed by specifying acceptable levels of exposure
to issuers, asset sectors and asset classes, among other
dimensions of diversification. Put another way, investment
policies integrate the return objectives of the liabilities
and the sensitivity of liabilities to changing economic
conditions, their expected cash flows, risk tolerances, and
other factors to help determine portfolio composition. We
use both quantitative and qualitative approaches to analyze
the liabilities in normal and stressed environments. By
developing a deeper understanding of the liabilities and
their behavior in different environments, we are better able
to develop an appropriate investment policy and strategy.
The asset portfolios are constructed and managed within
these allowable ranges to support the return objectives of
the liabilities.
Asset/liability management (ALM)
ALM is a key component of our approach to managing the
GIA and involves the analysis of cash flows and maturities
of the liabilities and their corresponding assets. The cash
flows can differ based on their sensitivity to various economic
conditions, with the level of interest rates both contributing to
and responding to these conditions. Duration is the sensitivity
of a security’s price to changes in interest rates. We project
liability cash flows under various economic and behavioral
scenarios for the products supported by each portfolio. We
then construct an asset portfolio with a duration profile
similar to that of the liabilities. By closely managing the
duration of the assets relative to that of the liabilities, we strive
to mitigate the impact that changes in interest rates will have
on our ability to meet policyowner needs.
Derivatives are an integral component of our ALM process
and portfolio management process. Derivatives are
instruments whose returns are based on, or “derived” from,
the performance of other securities or market indices. They
include such widely used financial tools as swaps, futures, and
options. Derivatives may offset asset or liability risks, provide
additional return, or both. Some derivatives are particularly
useful for managing interest rate risk and MassMutual uses
derivatives extensively for this purpose. Some derivatives may
be combined with other investments to capture incremental
returns or to mirror the economics of conventional bonds,
while gaining exposure to issuers or security types that would
otherwise be unavailable. An important item to remember
is that most derivatives are collateralized, either directly
with the trade counterparty or indirectly through a clearing
house. Either way, this means that the market value of a
contract is backed by cash or high quality securities held
in trust. Finally, MassMutual does not use derivatives for
speculative purposes.
Liquidity management
Liquidity management works in conjunction with ALM to
ensure MassMutual has the ability to meet policyowner needs
while not forcing the sale of assets at inopportune times.
Cash flow and liquidity needs are routinely addressed as part
of the investment management process. We also perform
periodic liquidity stress testing to review potential needs
and the sources of these needs. This analysis of possible
demands on portfolio liquidity under adverse scenarios
confirms that the Company continues to have a strong
liquidity position as it maintains a large share of its assets in
Portfolio management
5
• Prepayment risk is the risk of changes in the timing
of cash flows from a security, impacting the duration
management of the portfolio
• Liquidity risk is the risk that you can’t sell a security
at a fair value
Working within these risk parameters, the goal of prudent
portfolio management is to structure the risk/reward profile
of the investment portfolio in an optimal manner relative
to the liabilities. Sophisticated quantitative techniques and
systems are used to measure and monitor exposures to the
investment risks. Various strategies are used to protect our
portfolios from adverse consequences which might arise
from significant changes in the economic environment. Our
value-driven investment approach leads us to consider a
broad range of investments for potential purchase. Riskier
investments may be purchased when we are compensated
for the risks involved. However, there are issuer and overall
quality limits for each portfolio and for the entire GIA.
high quality public bonds and short-term investments that can
be sold quickly and easily to satisfy policyowner and client
needs if necessary. However, such sales are unlikely as the
Company has historically enjoyed strong positive cash flow.
Moreover, MassMutual has a $1 billion commercial paper
program that permits it to borrow on a short-term basis for
various corporate needs. While we do not rely on the ability
to issue commercial paper in liquidity planning, it adds to our
financial flexibility.
Risk management
Portfolio management, ALM and liquidity management
help to monitor and manage the investment risks of a
portfolio. Investment risks exist in different forms,
including but not limited to the following:
• Interest rate risk, or a change in interest rates,
can change the fair value of debt securities
• Credit risk, or the risk of a rating change, can
impact the value of a bond
• Default risk can impact the value of a bond, even in
the event of eventual repayment
Rating distribution of fixed income securities – $79 Billion as of December 31, 2014
AAA, AA, A
BBB
BB
B
Lower Quality
In or Near Default
57.9%
34.2% 3.5%2.7%
1.1%0.7%
NAIC Rating Category
Equivalent Rating Agency Designation
% of Bond Holdings
% of Total GIA Assets
1 AAA,AA,A 57.9% 32.2%
2 BBB 34.2 19.0
3 BB 3.5 1.9
4 B 2.7 1.5
5 Lower Quality 1.1 0.6
6 In or Near Default 0.7 0.4
100.0% 55.5%
6
Reflecting the conservative approach we believe best
helps us provide value to our policyowners, the core of our
GIA is comprised of bond holdings, or debt instruments
issued by governments, corporations, and other entities.
The conditions and expectations related to the debt of
specific issuers determine the relative appeal and expected
performance of a security. Industries and security classes
differ as to their sensitivity to economic cycles, the impact of
future conditions and events, and idiosyncratic risk factors,
leading us to regularly monitor market conditions as we
assess relative value. A by-product of this monitoring is our
ability to regularly invest in attractive opportunities while
limiting or reducing our exposure to fully valued sectors.
This consistent approach translates into holding investments
across vintage, sector and maturity spectrums, allowing us
to harvest the gains from some while providing others with
more time to develop. By always being in the market for
new investment opportunities, we believe we increase our
awareness of and access to the more attractive ones.
Finally, the regular cash flow of a debt security helps
provide the funds we use to pay policyowners benefits and
enables us to be steady buyers in all market environments.
Consistent market participation across asset classes
promotes market intelligence. Other classes in which we
invest can provide returns in the form of price appreciation,
dividends, earnings or other distributions that may fluctuate
in value, unlike the required coupon of a debt security.
Portfolio construction
We employ a disciplined approach to portfolio construction as we manage the GIA. Beginning with the potential universe of securities as defined in the investment policy – asset classes, sectors and securities are viewed through a risk/reward and economic factor framework. The former incorporates relative value and relative risk perspectives, while the latter considers the sensitivities to economic variables. Diversification across these perspectives increases the likelihood of achieving the investment objectives with reduced volatility while limiting the impact of a potential loss from any one security, issuer or event. Prudent portfolio construction dictates that we focus on both the return of and return on principal. Principal losses on investments require that the remaining assets generate higher returns on principal to maintain expected returns.
7
Government debt
U.S. government and agency debt have appeal for their
typically lower relative credit risk, high level of liquidity
and extensive range of maturities. As a result, these issues
are important components of our liquidity management and
ALM processes.
Corporate debt
Corporate debt provides an opportunity to invest in a
range of companies, industries, ratings and maturities that
provide yields greater than those earned by government
debt. While investing in corporate debt introduces default
risk, diversification serves to reduce the potential adverse
impact. We reduce the risk further by limiting exposure to
individual issues, issuers, and industry sectors. We have
included several tables that we believe distinguish our
approach to managing the bond portfolio. In the table below
you will note the low absolute level of exposure in the top 10
corporate bond obligors, while in other tables you will see
a high level of industry diversification and limited exposure
to lower-rated issues. The largest long-term corporate bond
issuer represents only 0.1% of GIA assets, while the ten
largest long-term corporate bond issuers combined are less
than 1.2% of GIA assets. Bond issuance has been at record
levels in recent years, offering investors the opportunity
to purchase bonds from high quality companies who issue
debt infrequently, and we continued to capitalize on these
opportunities. Our average exposure across issuers remains
relatively small as we maintain broad diversification.
Sector overview: Putting it all together
* Rating reflects weighted average for issuers with multiple ratings
GIA’s 10 largest long-term corporate bond obligors – December 31, 2014
Rank Exposure NameStatement Value
($ Millions) NAIC Rating*% of Cash &
Invested Assets% of Total
GIA Assets1 General Electric Capital Corporation $170 1 0.1% 0.1%
2 Wal-Mart Stores, Inc. 164 1 0.1 0.1
3 Oracle Corporation 163 1 0.1 0.1
4 Verizon Communications, Inc. 160 2 0.1 0.1
5 Viacom, Inc. 156 2 0.1 0.1
6 ClearBridge Energy MLP Fund Inc. 156 1 0.1 0.1
7 Republic Services, Inc. 147 2 0.1 0.1
8 Costco Wholesale Corporation 147 1 0.1 0.1
9 Arqiva Group Parent Limited 143 2 0.1 0.1
10 Deere & Company 127 1 0.1 0.1
Our general approach to security selection begins with analyzing issuers and then determining the appropriate way to invest in them. The issuer provides diversification, while the security provides a method to assess relative value.
8
Within corporate bonds, some issues may be secured by
specific assets like a mortgage on a manufacturing facility
while others may be secured by general assets. The security
interest or type of lien can vary from senior to subordinate
to unsecured, depending upon the financial strength of the
issuer, the nature of the debt issue, and other factors. The
multiple facets of an issue offer different combinations of
risk and return and provide the GIA the opportunity to assess
the value of an issue on a stand-alone basis and as part of the
larger portfolio. As we consider investments across industry
sectors, credit ratings and asset classes, these characteristics
will differ in importance.
For example, for lower credit rated issues we prefer stronger
security interests like those provided by leveraged loans
which are typically secured by the assets of the issuer.
We have teams in the U.S. and Europe whose specialty is
investing in leveraged loans of domestic and international
borrowers. Through this active, global network we are able
* Holding company debt
Diversification of long-term bonds – December 31, 2014
Statement Value ($ Millions) % GIA Long-term Bonds % Total GIA AssetsSectorU.S. Treasury $7,369 9.3% 5.2%
U.S. Agency 1,997 2.5 1.4
Municipal / Sovereign 4,638 5.9 3.3
Mortgage-Backed Securities - Residential 2,399 3.0 1.7
Mortgage-Backed Securities - Commercial 2,925 3.7 2.1
Asset-Backed Securities 9,366 11.8 6.6
Investment Funds 1,233 1.6 0.9
Other * 2,068 2.6 1.5
Corporate Credit (by Industry) - Banks 1,269 1.6 0.9
Capital Goods/Construction 5,845 7.4 4.1
Conglomerates 147 0.2 0.1
Consumer Goods/Cyclical 1,566 2.0 1.1
Consumer Staple/Services 6,708 8.5 4.7
Financial/Interest Rate Sensitive 1,327 1.7 0.9
Healthcare 2,879 3.6 2.0
Insurance Companies 477 0.6 0.3
Leasing Companies 2,951 3.7 2.1
Media 1,643 2.1 1.2
Natural Resources 5,386 6.8 3.8
Real Estate/Reits 2,682 3.4 1.9
Retail 1,268 1.6 0.9
Technology 2,351 3.0 1.6
Telecommunications 1,078 1.4 0.8
Transportation 2,106 2.7 1.5
Utilities 7,492 9.5 5.3
Total $79,169 100.0% 55.5%
9
to provide the GIA portfolio with access to issuers and
attractive investment opportunities that we might not
otherwise see.
European leveraged loans are a part of our international bond
portfolio which totaled $18.3 billion or 12.8% of GIA assets.
Our international bond exposure has grown as we capitalize
on global opportunities. The holdings by region are shown in
the table below.
Structured securities
Another method of diversifying portfolio holdings is
through structured securities. Through structured securities,
investors gain exposure to a diversified pool of individual
assets, providing exposure to a range of borrowers, asset
types, regions and industries. This diversification across
multiple dimensions serves to reduce the aggregate credit
risk of these securities. Some of the primary risks of these
structured securities are related to the timing of cash flows.
If interest rates decline, borrowers may prepay or refinance
their higher coupon loans early. If interest rates rise, they
may retain their lower coupon loans longer. Either way,
the timing of expected cash flows can change, affecting
the value of the securities. For taking on this risk, investors
are rewarded with higher yields. Because investors have
different risk and return objectives, the structure of these
securities evolved from single-class securities into multiple
class securities offering access to different levels or periods
of cash flows in the pool. For example, a class may receive
all principal received in the early years until its class is paid
off, while other classes may receive principal in the latter
years, thus earning interest for a longer period of time.
There are numerous variations on these different classes,
but the key is that investors can select the class offering the
combination of features important to them.
Residential Mortgage-Backed Securities (RMBS) are one
of the earlier examples of a structured security, but are by
no means the only type. Due to market evolution, similar
products exist for a number of other collateral types,
including corporate bonds, leveraged loans, commercial
mortgage loans and other types of lending to businesses and
consumers. Of special note, securities backed by leveraged
loans are referred to as Collateralized Loan Obligations
(CLOs). Because we manage and invest in CLOs, we
have developed specialized analytic systems to help us
look through these structured securities at the underlying
collateral to facilitate evaluation and analysis. Purchase of
these securities for our portfolios arises naturally from the
consistent application of our value investment philosophy,
which seeks the most attractive risk/reward available from
the array of suitable investments.
GIA international bond diversification – By geographic region – December 31, 2014
RegionStatement Value
($ Millions)% of Total
GIA AssetsWestern Europe $5,099 3.6%
United Kingdom 4,970 3.5%
Australia/New Zealand 3,426 2.4%
Canada 1,933 1.4%
Asia 891 0.6%
Latin America 839 0.6%
Middle East/Africa 483 0.3%
Caribbean 351 0.2%
Eastern Europe 285 0.2%
$18,277 12.8%
10
In addition to our securitized exposure we invest in
residential mortgage loan pools. These are similar to
publicly traded mortgage pass-through securities, but
they are whole loans and not securitized. As a result,
they typically have higher yields than RMBS while also
providing more stable cash flows than the typical RMBS due
to the underlying loan characteristics. A great majority of the
$2.0 billion of loans underlying these pools have government
support from either the Federal Housing Administration or
Department of Veterans Affairs in addition to being secured
by homes.
Commercial real estate
Investing in commercial real estate offers another source
of attractive returns that are less correlated with other
asset sectors, while helping to diversify risks across a
wider variety of sources. Our affiliated asset manager,
Cornerstone, handles the vast majority of our real estate
investment management. Consistent with other members
of the investment management organization their goal is to
generate value for the policyowners.
Commercial mortgage loans (CMLs) are one of the three
primary methods we have for investing in the sector. CMLs
are secured by properties such as offices, warehouses,
apartments, shopping malls, and hotels. As shown in the
tables above, our year-end 2014 holdings of $18.3 billion or
12.8% of GIA assets are diversified geographically and by
property type and are typically secured against properties
with stabilized cash flows. The direct investments in CMLs
enable extensive up-front due diligence and offer the ability
to structure loan terms and covenants that can help mitigate
potential risks associated with future property performance.
Commercial mortgage loan diversification – December 31, 2014
Property TypeStatement Value
($ Millions) # Loans % Total Commercial
Mortgage Loans % Total GIA Assets Apartments $ 4,440 133 24.2 % 3.1 %
Hotels 1,858 35 10.1 1.3
Industrial 1,925 61 10.5 1.4
Office & Medical Office 6,509 93 35.5 4.6
Shopping Centers & Retail 2,131 50 11.6 1.5
Miscellaneous 1,457 27 8.0 1.0
$18,319 399 100.0 % 12.8 %
RegionStatement Value
($ Millions) # Loans % Total Commercial
Mortgage Loans % Total GIA Assets Northeast $3,606 50 19.7 % 2.5 %
Mid-Atlantic 2,420 48 13.2 1.7
Southeast 814 37 4.4 0.6
Midwest 2,533 60 13.8 1.8
Southwest 1,930 76 10.5 1.4
West 5,908 109 32.2 4.1
Canada 404 14 2.2 0.3
United Kingdom 704 5 3.8 0.5
$18,319 399 100.0 % 12.8 %
11
Utilizing our network of regional offices, we rely upon
commercial real estate professionals from both the debt
and equity disciplines to proactively monitor, identify and
assess local market trends. This same level of diligence and
surveillance is continued through the life of the loan with
a dedicated team of asset managers that closely monitors
the ongoing performance of the borrower in relation to the
markets and the borrower’s business plans.
We use a similar approach when investing in Commercial
Mortgage-Backed Securities (CMBS). We are opportunistic
participants in this sector, with a bias towards the highest
quality issues where we underwrite the underlying loans as
part of our analysis. Our approach has been to participate
* Schedule A real estate excludes Home Office properties of $168 million and includes $1,693 million of Schedule BA assets
** Statement value is net of reserves, depreciation and debt
Real estate equity diversification – December 31, 2014*
Property TypeStatement Value
($ Millions) ** # of Properties % of Total Real Estate % of Total GIA AssetsOffice $1,024 51 44.0% 0.7%
Hotel 253 17 10.9 0.2
Apartment 314 29 13.5 0.2
Retail 235 14 10.1 0.2
Ind./ Other 283 23 12.2 0.2
Land 217 11 9.3 0.2
$2,326 145 100.0 % 1.6%
RegionStatement Value
($ Millions) ** # of Properties % of Total Real Estate % of Total GIA AssetsNortheast $547 27 23.5% 0.4%
Mid-Atlantic 463 27 19.9 0.3
Southeast 257 22 11.0 0.2
Midwest 79 6 3.4 0.1
Southwest 173 21 7.4 0.1
West 378 30 16.3 0.3
Other 429 12 18.4 0.3
$2,326 145 100.0 % 1.6%
when conditions are favorable or when the opportunities
would complement our CML portfolio. At year-end 2014,
our CMBS holdings were $2.9 billion of which over 59%
were rated AAA by the major rating agencies and over 96%
were considered investment grade by the NAIC.
Overall, we have assembled a portfolio of CMLs and
CMBS to well-qualified borrowers whose loans are backed
predominantly by priority secured liens against properties
with stabilized cash flows. The fact that we can take direct
control of the underlying real estate in distressed situations
results in our emphasizing CMLs over CMBS, but both
play a part in constructing a diversified portfolio best able to
generate attractive long-term returns for the GIA.
12
Equity investments
While the investment strategy of the GIA is focused
predominately on high quality fixed income assets, the GIA
does have an appetite for equity assets, including equity
real estate. Equity investments provide another means for
investing in various issuers. Some benefits of equity investing
include the opportunity to capitalize on changing prospects for
companies and industries, to enjoy returns that are not highly
correlated with other asset classes, and to invest in issuers
or industries that don’t have much debt outstanding. While
not guaranteed, equity investments can provide some level
of inflation protection in their underlying value, an attractive
feature in the current environment. Many of the characteristics
of equity investments align with the long-term GIA goals, thus
we opportunistically seek value in our equity investing.
We invest in the public and private equity markets both held
directly and through limited partnerships. Publicly listed
shares are readily available and are fairly liquid, however the
Highest return is blue, second highest is green and third highest is red
* These asset classes are components of the larger Investment grade bond sector
Source: FactSet Research Systems Inc.
Asset class return history
typical investor is far removed from the senior management
of the enterprise. Conversely, private equity is less liquid,
requiring a longer-term focus, and is typically available in
a limited partnership or similar structure, thus limiting the
total number of company owners. Private equity increases
opportunities for us to be closer to the senior management of
the enterprise. As a result, private equity makes up the larger
portion of the equity portfolio and has provided significant
benefits for many years, both directly through ownership
and indirectly through attractive lending opportunities that
arise from these relationships.
At year-end 2014, we also had equity real estate
investments, directly and through funds and partnerships,
of $2.3 billion or 1.6% of GIA assets. Similar to mortgage
loans, equity real estate provides a source of return that is
less correlated with other classes and helps to diversify our
returns across a larger group of investments, minimizing the
impact of any one event.
Annualized Total Return
Asset Class 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 5 Yrs 10 YrsInvestment grade bonds 2.43 4.33 6.97 5.24 5.93 6.54 7.84 4.21 -2.02 5.97 4.10 4.74
Investment grade credit * 1.95 4.27 5.11 -3.08 16.04 8.47 8.35 9.37 -2.01 7.53 5.76 5.55
RMBS * 2.62 5.23 6.90 8.34 5.89 5.37 6.23 2.59 -1.41 6.08 3.45 4.74
High yield bonds 2.74 11.87 1.87 -26.16 58.21 15.12 4.98 15.81 7.44 2.45 7.93 7.82
Developing nation bonds 10.25 9.86 6.16 -12.03 29.82 12.24 7.35 17.44 -5.25 7.43 6.61 7.83
Bank loans 5.69 7.35 1.32 -28.75 44.87 9.97 1.82 9.44 6.15 2.06 5.84 4.71
Large cap equity 4.91 15.79 5.49 -37.00 26.46 15.06 2.11 16.00 32.39 13.69 13.98 7.81
Small cap equity 4.55 18.37 -1.57 -33.79 27.17 26.85 -4.18 16.35 38.82 4.89 12.92 8.27
International equity 14.02 26.86 11.63 -43.06 32.46 8.21 -11.73 17.90 23.29 -4.48 5.81 4.91
Equity real estate 8.29 34.35 -17.83 -37.34 27.45 27.58 7.28 20.14 3.21 30.43 14.06 8.74
Gold 21.39 -14.77 9.14 -15.82 17.27 30.97 -0.68 -20.41 -48.51 -17.15 -17.36 -6.39
3 month Treasury bill 3.00 4.76 4.74 1.80 0.16 0.13 0.08 0.07 0.05 0.03 0.07 1.41
13
Investing in businesses that benefit our policyowners
MassMutual’s business structure is built to support our
mutuality. Our strategic investments in retirement, asset
management and international insurance businesses have
the potential to provide us with diverse sources of growth
and earnings that can help us grow capital and enhance our
dividend-paying ability. In addition, they allow us to offer a
broad spectrum of products and services to meet the financial
needs of our clients through various life stages.
Why are issuer and asset sector diversification so important?
We believe that diversification is a key component of our
strategy to generate competitive long-term returns for the
GIA while ensuring that we’re able to meet our obligations
to policyowners. A well-diversified GIA is a result of the
approach our investment professionals use to assess the
relative value of asset sectors and issuers as they make
investment decisions. While past returns may not be
replicated in the future, we believe it is prudent to review
past asset behavior as part of a framework for assessing
potential future outcomes.
The table on the preceding page features many of the asset
sectors in which we invest and their total returns for the past
10 years. Over relatively short time periods, an investor can
earn significant returns from certain asset classes; however,
these classes frequently experience reversals. This volatility
supports our approach of regularly participating in many of
these classes as buyers and sellers while focusing the core
of our portfolio on the more stable (primarily debt) asset
classes. Conversely, the more stable classes may not provide
enough return to grow our portfolio adequately. By investing
in a broad combination of these asset classes, we believe the
GIA is best able to deliver on the expectations placed upon it.
Earning your confidence
MassMutual operates in an extremely competitive financial services marketplace. Our primary objective continues to be maintaining the financial strength to fulfill our commitments to our policyowners and clients over the long-term. In support of that goal, we will continue to pursue the same value-driven investment philosophy that has served you so well. We think you will agree that doing business with MassMutual is a good decision.
We welcome your comments and questions. Please direct any inquiries to your MassMutual representative or your financial adviser, or feel free to submit them via our website at www.massmutual.com, which you can also explore for additional financial and investment information.
MS1003 615 CRN201606-192281
© 2015 Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.
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