NEW YORK ( TheStreet) -- Recently we looked at multi-asset class funds and whether they could serve as a one-holding portfolio. The latest fund to join the discussion is the ETRACS Diversified High Income ETN (DVHI). The new fund seeks to offer a 60% equities/40% fixed-income target allocation, a common mix for individual investors.
The equity portion is comprised of business development companies (15%); master-limited partnerships (15%); and mortgage real estate investment trusts, non-mortgage REITs, U.S. equities and foreign equities (all 7.5%).
The fixed-income portion puts an equal 10% into preferred stocks, emerging-market bonds, municipal bonds and high-yield bonds.
ETRACS reports the yield of the underlying index to be 7.71%, which after accounting for the 0.84% "annual tracking rate" could put the fund's yield at 6.87%. DVHI will pay monthly, but the rate paid could vary. It is important to remember that with all exchange-traded products, any future yield could be more or less than what is now indicated.
The individual holdings in DVHI are a combination of individual issues and exchange-traded funds. Two of the segments owned by the fund are captured with just one ETF. The
PowerShares Emerging Markets Sovereign Debt Portfolio
is the sole holding for emerging-market debt. For high-yield debt, DVHI goes with
iShares iBoxx High Yield Corporate Bond ETF
The two largest individual holdings in the fund are
, a business development company, and
Energy Transfer Partners
, an MLP.
The composition of the fund should make it clear that the two priorities under the hood are diversification and yield. That should appeal to many investors. The fund, however, is exposed to a lot of interest rate risk.
Earlier this week, markets were granted a reprieve when the
Open Markets Committee announced that it wouldn't begin to reduce its bond-buying program.
In late May, the committee indicated that it could reduce purchases later in the year, and as the story developed, markets participants came to believe that September was the month that a change in policy would be announced. So we know that purchases will continue as is for now, and we also know that at some point, the Fed will reduce its monthly purchases. What we don't know is when.