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:

• iShares Lehman TIPS Bond (TIP)
• SPDR Barclays Capital TIPS (IPE)

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