Last October, I penned a post for Dealbreaker in which I gently suggested that the Tennessee Consolidated Retirement System reconsider its allocation to emerging market equities.
That piece was focused on TCRS’s allocation to the iShares MSCI South Korea Capped ETF at a time when Donald Trump and Kim Jong-Un were busy exchanging absurd insults and threatening each other with nukes. The overarching point, though, was that there needn’t be a nuclear war between Washington and Pyongyang for something to go wrong with that EM allocation.
Here are some quotes from that linked post:
Here’s the other thing: Tennessee’s emerging market ETF exposure doesn’t stop with South Korea. They are also the largest holder of the iShares MSCI Brazil Capped ETF, which is of course subject to all manner of political risk.
And then there’s the iShares MSCI Taiwan Capped ETF where Tennessee is, again, the largest holder:
Obviously, the fund is also heavily invested in things that aren’t emerging markets, but when you consider [the idiosyncratic risks inherent in EM] with the very real possibility that further Fed hikes, balance sheet rundown, and any movement on tax reform could catalyze a potentially sharp rally in the dollar, this looks like a lot of risk to be taking for a pension plan.
Fast forward 10 months and there was indeed “movement on tax reform” and there were indeed “further Fed hikes” and although the Bloomberg dollar index is sitting about where it was when that piece was published, it is indeed up “sharply” since the lows in February.
Well, in addition to the allocation to South Korea, Taiwan and Brazil, TCRS was the biggest institutional holder of the iShares MSCI Turkey ETF as of June 30. Specifically, the fund held some 880,000 shares, according to filings.
As you’re probably aware, TUR has collapsed this year amid Turkey’s ongoing currency crisis and the country’s descent into authoritarian rule. Specifically, it’s down some 53% from the highs.
Again, none of this is to say that TCRS is in some kind of dire straits. Their allocation to U.S. equities (including high fliers like Apple) has clearly done well as have, I’m sure, many of their other positions. So save me your allegations of fearmongering.
Rather, everything said above is meant simply to underscore the points made in the post linked here at the outset nearly a year ago. Namely, that when you’re managing retirement plans and scholarship money, it might be a good idea to make sure you’re fully apprised of the risks associated with an imminent reversal of the dynamics that have driven investors into EM assets since the crisis.
Now, let’s revisit a fun comment posted on that Dealbreaker piece, shall we? This was from one “Fuzzy Investicle”:
Fuzzy Investicle· 44 weeks ago
This article is inflammatory and stupid. Further, this is why most professionals with employment options have zero desire to work for a public pension. Absurd press and below market compensation; what a way to spend a career.
Heisenberg: Moron says what.
Fuzzy Investicle: What?