state coin The TennesseeConsolidated Retirement System was, as of earlier this summer, thelargest institutional investor in a Turkey exchange-traded fund.(Photo: Shutterstock)

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Tennessee's public employees should be keeping a close eye onTurkey's economic woes.

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Its currency crisis could end up hurting the state's retirees,since the Volunteer State's retirement system is the largestinstitutional investor in a Turkey exchange-traded fund.

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Reuters reports that the Tennessee ConsolidatedRetirement System manages a retirement plan for public employeesstatewide. And as of June 30, it held more than 880,000 sharesvalued at approximately $19 million.

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The U.S.-based iShares MSCI Turkey ETF has dropped in value by about half, thanksto fears over Turkish President Tayyip Erdogan's influence overmonetary policy and a worsening diplomatic situation relative tothe U.S. The country's currency has fallen more than 37 percent,while its BIST 100 stock index has fallen about 22 percent.

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Last year it was a different story, with the ETF bringing in areturn of approximately 38 percent, including dividends.

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Fortunately it's not the only investment held by TCRS, or even alarge part of it, according to the report, with a value estimatedat $49.7 billion and an annual return of 8.19 percent at the end ofits fiscal year on June 30.

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The report says that TCRS's strategy involved building a passiveportfolio of single-country ETFs that allowed it to excludecountries that ranked poorly on third-party indexes of corruptionand democracy.

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It cites one of the fund's investment reports as saying thatallowed it to exclude China, the largest emerging market.

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Individual country ETFs held in the portfolio are weighted bytheir market size relative to the overall benchmark. According tothe report, TCRS said it did not take an active position, eitherpositively or negatively, on Turkey.

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Michael Brakebill, TCRS's chief investment officer, is quoted inthe report saying, “It is obviously a frustrating situation andit's a real shame what's happening in the country,” adding, “Thisparticular incident doesn't make us rethink the strategy. It ispart and parcel with what we walk through in the risks involvedwith emerging markets.”

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