February 12, 2008 at 1:00 pm by Tom Lydon
Is there an exchange traded fund (ETF) to add to a portfolio that can offer protection against an evil greater than even that of inflation?
That’s stagflation: a state of the economy in which prices keep rising as the economy continues to contract, reports John Wasik for Bloomberg.
Stagflation hasn’t been seen in a generation and requires special investments to combat its punishing effects on a portfolio. In this situation, the conventional wisdom about recessions has to go out the window.
Major signs that we’re headed for a state of stagflation include a stagnant GDP for the fourth quarter, consumer price inflation above 4%, gold at a record high of $929 an ounce, along with existing home sales dropping 13% and the United States actually losing jobs for the first time in four years.
If you’re among those who believe we’re on a path to stagflation, Wasik suggests two investments in particular: commodities and treasury inflation-protected securities (TIPS). These are investments that combine income and price appreciation, and they rise with inflation expectations.
For commodities exposure, check out:
- PowerShares DB Commodity Index Tracking Fund (DBC)
- PowerShares DB Agriculture (DBA)
- Market Vectors Global Agribusiness (MOO)
And for TIPs exposure, have a look at:
It’s also worth noting that Mr. Wasik is my co-author on our ETF book, which will be out this spring! Stay tuned for more details soon.
Tags: Commodity ETFs, DBA
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