KIDS Thematic Indices: Enabling Investors to Invest in Firms That Cater to Children

Abstract

Thematic exchange-traded funds have been growing in popularity. In this article, three children-oriented indices are constructed based on equal-weight (KIDSEW), price-weight (KIDSPW), and value-weight (KIDSVW) techniques, respectively. All three indices comprise thirty-nine companies that cater to children in some way. The performance of these three KIDS indices is compared with that of the S&P 500 Index from January 1, 2006, to January 1, 2019. Results in this article indicate that the KIDS indices consistently outperformed the traditional S&P 500 market index in both absolute and risk-adjusted terms. These indices can be used in advancing financial literacy in high schools and among parents, as they are easily understood because of their familiarity with composition and construction methods.

TOPICS: Exchange-traded funds and applications, security analysis and valuation, performance measurement

Key Findings

• • Children are a neglected or underrepresented segment of the thematic investment universe.

• • A thematic index wrapped in an ETF can produce above-market risk-adjusted returns.

• • Three KIDS indices described in this paper can bring more investors to firms that cater to children and enable financial literacy campaigns to educate children about the investment industry.