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%). PCY - Get Report) is the sole holding for emerging-market debt. For high-yield debt, DVHI goes with iShares iBoxx High Yield Corporate Bond ETF ( HYG - Get Report). The two largest individual holdings in the fund are Ares Capital ( ARCC - Get Report), a business development company, and Energy Transfer Partners ( ETP, 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 Federal Reserve's Open Markets Committee announced that it wouldn't begin to reduce its bond-buying program.
Late May and June gave a hint of what certain market segments might do when the so-called tapering begins. Some of the hardest hit areas are featured prominently in DVHI. For the month ended June 22, PCY declined by 14%, HYG by 7%, ARCC 10% and ETP declined by 9.5%, and keep in mind the Fed didn't actually do anything. The Market Vectors High Yield Municipal Index ETF ( HYD - Get Report), one of the funds used in DVHI for muni bonds, went down 14% in that same month. Whenever the Fed does start to taper and then whenever interest rates do start to go higher, DVHI is likely to get crushed because so many of the areas it owns are sensitive to interest rates. Follow@randomroger This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.