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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.