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Daken Vanderburg on harnessing long-term strategies for sustained growth

IT'S HARD to condense 173 years of success into one guiding principle, but Daken Vanderburg, chief investment officer of wealth management at MassMutual, has it top of mind. “We try to get the big things right, and the little things take care of themselves.” That simple theory encapsulates the essence of MassMutual’s investment philosophy – and in an economic environment marked by constant change and uncertainty, MassMutual's commitment to fundamental investment principles remains steadfast. “Minimize taxes, minimize costs, truly diversify as well as you possibly can,” Vanderburg elaborates. “We use the core engines of capitalism to build a portfolio and avoid overcomplicating it with unnecessary elements that often hurt you in the end.”

MassMutual is a mutual life insurance company that is run for the benefit of its members and participating policyowners. Founded in 1851, the company has been continually guided by one consistent purpose: we help people secure their futures and protect the ones they love. With a focus on delivering long-term value, MassMutual offers a wide range of protection, accumulation, wealth management, and retirement products and services. As a mutual company, we are able to take a long-term approach to managing our business. This has enabled us to deliver strong results for our participating policyowners while maintaining financial strength ratings that are among the highest in our industry. We benefit from the diversification of our businesses, products, and investments, especially in these more volatile times.

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Inflation Remains Sticky

Jan-1980

“Minimize taxes, minimize costs, truly diversify as well as you possibly can”

Daken Vanderburg, MassMutual

However, he adds, nonprofits have been resilient. “Most of our insureds are not only recovering back to their pre-pandemic state, but are in fact expanding,” he says. Parvathy Sree, vice president of nonprofit underwriting for AmTrust Financial Services, agrees. She says some nonprofits, such as homeless shelters and schools, adapted particularly well to the challenges. “Nonprofits with good management and decent financials were able to survive the last year and are seeing the fruits of their hard work and diligence,” Sree says, but she cautions growing organizations to be diligent with loss control and risk mitigation, emphasizing that while claim counts are down and court cases are in limbo, things could change.

Over its time in the industry, MassMutual has continually faced and adapted to extraordinary moments of change. The company’s strength lies in its mutuality, a concept that underscores the power of collective effort. The mutual benefit model has been a cornerstone of MassMutual's operations, driving a deep sense of responsibility and commitment to its clients. MassMutual’s investment strategy places a strong emphasis on behavioral frameworks. Vanderburg points to the Dalbar

study, which looked at average investor returns over a 25-year period and found that the average investor earned about four percent less than the S&P 500. The reasons included taxes and fees, but the primary issue was behavioral – investors often buy at market highs and sell at lows. “The human mind has numerous biases. Our brains are wired for strong risk aversion; if a portfolio gains 10 percent, it brings one unit of joy, but a 10 percent loss causes seven units of pain. This 7:1 pain-to-pleasure ratio leads to panic selling during market drops and fear of missing out during rallies. “We focus extensively on behavioral strategies to keep people on track, emphasizing long-term perspectives – 10 to 50 years – over short-term fluctuations.” More holistically, MassMutual’s investment philosophy focuses on maintaining a well-diversified general investment account with high-quality core assets. The goal is to generate competitive long-term results while retaining the ability to weather financial market downturns. This balanced approach ensures that the company’s portfolio remains resilient and robust, providing stability and security to policyowners. “We make calculated and thoughtful decisions while staying away from many of the risks our competitors seem to embrace. We are cautious because we’re trying to meet long-term policyowners’ goals,” Vanderburg remarked.

Recently, the US has experienced record inflation levels not seen since Paul Volcker’s tenure as chair of the Federal Reserve in the 1980s. This inflation was largely self-inflicted. It can be attributed to several factors: about 20 percent came from pent-up demand as people returned to restaurants and travel; another 20 percent was from supply-chain disruptions; and the remaining 60 percent was the result of a massive increase in the money supply. Sending money directly to people’s mailboxes and checking accounts, the US government gave consumers a lot of extra cash. Consequently, when interest rates, credit card payments, car payments, home prices, and mortgage rates increased, people didn’t feel the impact because they had substantial cash reserves. However, consumers have now exhausted those cash reserves, and with those excess savings gone, high interest rates are starting to hurt. This depletion of extra cash is a critical factor in the current economic situation, and it’s something MassMutual is monitoring very closely. “Inflation has always remained really sticky … primarily [because of] behavioral reasons. The Federal Reserve is pulling out liquidity at an important time, especially when growth is starting to slow. That can be a tricky line to walk,” Vanderburg says. “Inflation never falls as quickly as people think [it will], and the market has been far too optimistic about it doing so.” He stresses that it’s important for advisors and clients to use challenging markets as an opportunity to reinforce long-term financial plans. Despite significant challenges, the US also has significant advantages, including strong capital markets, intellectual property rights, and a robust political system. The geographic distance and innovation incentives further strengthen its position.

“If you have cash, you don't want to keep it in a place where it runs the risk of disappearing overnight, as we saw in the global financial crisis”

DAKEN VANDERBURG, MASSMUTUAL

There are two primary ways to grow economies: population growth and productivity increases. This is one of those rare moments, occurring every 20 or 30 years, when a new technology emerges as a catalyst for productivity growth and in turn sustains economic growth. In this case, the new technology is artificial intelligence (AI). While new technologies are often seen as buzzwords – and can even initially provoke fear – “we shouldn’t resist them.” “Much like the industrial revolution or the advent of steam engines, [AI] truly can be a productivity boon. If used well, the lift from AI and related technologies can create remarkable

efficiency gains, especially in the US,” Vanderburg asserts. “With thoughtful implementation, I’m quite bullish on future prospects.” Volatile economic conditions reach beyond the borders of the US, and in contrast to it, Vanderburg points to China as presenting significant challenges. Once touted as one of the world’s fastest-growing economies, Vanderburg points out that China has attempted to blend autocracy with elements of communism and capitalism, but this approach hasn’t worked as well as had been hoped. China historically encouraged rural-to-urban migration, and financed much of that expansion through leverage – and now this model is falling apart. This is particularly concerning because, from 2007 to 2021, China accounted for the majority of global growth. If China’s growth continues to slow, it raises the question of who will fill that void. Vanderburg says, “When major economic powers start to stumble, they often make rash decisions. This pattern has been seen over the last 2,000 years of empires, and China is currently in a particularly precarious position, while the US position is strong. There are very few absolute decisions in investing … it’s primarily about making relative trade-offs.

A balanced strategy built on a mutual foundation

Looking ahead

A balanced strategy built on a mutual foundation

Published June 24, 2024

“If you have cash, you don't want to keep it in a place where it runs the risk of disappearing overnight, as we saw in the global financial crisis”

Daken Vanderburg, MassMutual

Jan-1990

Jan-2000

Jan-2010

Jan-2020

-4%

-2%

10%

12%

14%

16%

Source: WMIT; St. Louis Federal Reserve; March 25, 2024

Source: WMIT; St. Louis Federal Reserve

Apr-1980

Apr-1990

Apr-2000

Apr-2010

Apr-2020

-10%

US Growth Remains Fine

-5%

-0%

10%

15%

20%

Thrived despite economic pressures, including geopolitical shocks and instability in the US banking system

Why MassMutual : our financial strength

Maintained financial strength ratings that are among the highest of any company in any industry

Surpassed $1 trillion of life insurance protection in force and ranked no. 102 on the Fortune® 500

More than doubled total adjusted capital over the past decade, to nearly $34.5 billion

Continues to pay an average of $25 million in insurance and annuity benefits each day

Analyzing the current market conditions, Vanderburg notes several key factors shaping the economic environment, making this a particularly fascinating period. The key advantage for MassMutual is its structure as a mutual company. Vanderburg elaborated, “Given we seem to have an unprecedented crisis every couple of years, the security of your capital is vital. If you have cash, you don’t want to keep it in a place where it runs the risk of disappearing overnight, as we saw in the global financial crisis. I remember sleeping under my desk watching whether or not massive firms like Lehman and Bear Stearns were going to pay their overnight exposures. Those events happen far too often – but for MassMutual, the impact was minimal.”

Economic environment very interesting at the moment

For Vanderburg, whose journey to MassMutual was marked by his deep commitment to innovation and strategic growth, this is all part of the long-term plan.

In the face of global and domestic market challenges, MassMutual’s underlying strategy is rock-solid — but when advancements are called for, Vanderburg is unafraid to make moves. MassMutual’s track record of success stretches back over a century, and there has been a marked increase in demand for its wealth management solutions, which are provided by advisors affiliated with MML Investors Services, MassMutual's broker/dealer and investment adviser subsidiary. Much of the industry is outdated when compared with client needs, because insurance, spending accounts, and wealth management tend to be handled separately; in fact, these services need to be effectively integrated. Vanderburg says this presented MassMutual with a “unique opportunity to solve a meaningful problem for clients by creating a cohesive, thoughtful, and efficient wealth management business,” and he’s seeing the company’s efforts come to fruition. Client assets have grown to around $245 billion, leveraging the company’s moderate insurance background and integrating it into other financial services such as lending, philanthropy, foundational needs, planning, and investment.

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Economic environment very interesting at the moment

Volatile economic conditions reach beyond the borders of the US, and in contrast to it, Vanderburg points to China as presenting significant challenges. Once touted as one of the world’s fastest-growing economies, Vanderburg points out that China has attempted to blend autocracy with elements of communism and capitalism, but this approach hasn’t worked as well as had been hoped. China historically encouraged rural-to-urban migration, and financed much of that expansion through leverage – and now this model is falling apart. This is particularly concerning because, from 2007 to 2021, China accounted for the majority of global growth. If China’s growth continues to slow, it raises the question of who will fill that void. Vanderburg says, “When major economic powers start to stumble, they often make rash decisions. This pattern has been seen over the last 2,000 years of empire, and China is currently in a particularly precarious position, while the US position is strong. There are very few absolute decisions in investing … it’s primarilIn the face of global and domestic market challenges, MassMutual’s underlying strategy is rock-solid — but when advancements are called for, Vanderburg is unafraid to make moves. MassMutual’s track record of success stretches back over a century, and there has been a marked increase in demand for its wealth management solutions, which are provided by advisors affiliated with MML Investors Services, MassMutual's broker/dealer and investment adviser subsidiary. Much of the industry is outdated when compared with client needs, because insurance, spending accounts, and wealth management tend to be handled separately; in fact, these services need to be effectively integrated. Vanderburg says this presented MassMutual with a “unique opportunity to solve a meaningful problem for clients by creating a cohesive, thoughtful, and efficient wealth management business,” and he’s seeing the company’s efforts come to fruition. Client assets have grown to $245 billion, leveraging the company’s moderate insurance background and integrating it into other financial services such as lending, philanthropy, foundational needs, planning, and investment. For Vanderburg, whose journey to MassMutual was marked by his deep commitment to innovation and strategic growth, this is all part of the long-term plan. “I came in, candidly, to kind of shake things up, to try to take a ... clear lens, taking an honest and objective look at our operations, and making significant changes where necessary,” he says. That sharp eye has helped ensure that MassMutual’s venerable reputation will remain solid.y about making relative trade-offs.