Although many are worried about inflation and its effects on exchange traded funds (ETFs), deflation should be on investors minds as well.

In an interview with Gary Shilling, Heesun Wee of Tech Ticker states that Shilling believes deflation is inevitable because of technological advances boosting productivity, globalization and weak demand for U.S. consumer goods.  He suggests these factors could lead to higher inventories and cut about 1.5% off real U.S. GDP growth each year.

If this is the case, you don’t have to run for the hills, as there are ways to hedge deflation with ETFs.  A common place to look is at high-dividend paying investments, such as utilities, which can be accessed through the Vanguard Utilities ETF (VPU), up 5.1% year-to-date (More reasons to look at utilities).

Another good sector to consider is health care. (More reasons health care is appealing).  This can be played through the iShares Dow Jones U.S. Healthcare Providers (NYSEArca: IHF), which is up 28.3% year-to-date.

For more stories on health care, visit our health care category.

Consumer staples are also an option to hedge deflation. The unemployment rate is at a 26-year high, which means that there are still millions of people feeling the pinch. When they shop, they’re looking for what they need, not what they want. Consumer Staples Select Sector SPDR (NYSEArca: XLP) is up 15.4% year-to-date.

If deflation does become a factor, the dollar should begin an uptrend. If this happens, a potential play could be the PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP), which is down 9.4% year-to-date.

Kevin Grewal contributed to this article.

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.