The FTSE 100 is the key indicator of the UK’s biggest publicly traded companies. Nicknamed the “Footsie”, this index serves as a crucial benchmark for both domestic and international investors.
What Does FTSE Stand For?
FTSE is an acronym for Financial Times Stock Exchange. It originated from the names of the two companies that launched the index: the Financial Times and the London Stock Exchange.
FTSE History
On January 3, 1984, the FTSE 100 was launched with a base value of 1,000 points. It represented a significant step forward in measuring the UK’s largest publicly traded companies, expanding beyond earlier indexes like the FT 30.
Over the following decades, the index’s composition has continuously evolved to reflect the changing economy. New sectors, such as tech and telecoms, have been incorporated, while the total market value has tracked economic shifts, mirroring booms and recessions.
How is the FTSE 100 Calculated?
As a market capitalisation weighted index, the total market cap of each constituent determines its influence on the FTSE 100’s value. This is calculated by multiplying the current share price by the number of shares outstanding.
FTSE Russell, a subsidiary of the London Stock Exchange Group, recalculates the market cap periodically as stock prices fluctuate and companies issue new shares. Larger firms carry greater weight in driving the index up or down. For instance, Shell and Unilever alone represent nearly 10% of the total index, meaning their price movements have significant effects.
Why the FTSE 100 Matters
By capturing the performance of the London Stock Exchange’s largest companies in a single figure, the FTSE 100 provides a snapshot of UK economic strength. Investors monitor its movements when assessing investor confidence and making investment decisions. Analysts use it to identify macroeconomic trends, while policymakers consider its performance in their strategic planning.
A rising FTSE 100 indicates investor confidence, suggesting increased appetite for business deals, recruitment, and investment. Conversely, falling values signal potential challenges for UK companies, potentially leading to tighter credit conditions and slower growth.
Biggest FTSE 100 Companies
The FTSE 100 is a dynamic index. Companies are rigorously assessed, with strong performers replacing those that fall behind. Familiar names like Unilever, HSBC, AstraZeneca, Shell, British American Tobacco, and Glencore are frequently among the UK’s most valuable publicly traded companies.
Top 10 FTSE 100 Companies by Market Cap:
- Shell plc
- AstraZeneca plc
- HSBC Holdings plc
- Unilever plc
- BP plc
- GSK plc
- Rio TInto plc
- Relx plc
- Diageo plc
- Glencore plc
Beyond the FTSE 100
Several related indices offer a more detailed picture of the UK stock market:
- The FTSE 250 focuses on mid-sized companies, primarily based in the UK, offering investors exposure to businesses with potential for future growth.
- The FTSE Small Cap index tracks companies that meet FTSE criteria but are too small for the FTSE 100 or FTSE 250.
- The FTSE AIM 100 hosts smaller companies with less capital, providing opportunities for investors interested in early-stage businesses.
- The FTSE All-Share Index aggregates the FTSE 100, FTSE 250, and FTSE Small Cap indices, offering a comprehensive view of market performance.
FTSE Russell conducts quarterly reviews (March, June, September, and December) to assess the FTSE 100 composition and potentially promote or demote companies.
Frequently Asked Questions
Can I Invest Directly In The FTSE 100?
You can’t invest buy the FTSE 100, but you can still invest in its performance. Here’s how:
Exchange-Traded Funds (ETFs): These operate like baskets holding small portions of all 100 FTSE companies. Investing in an ETF allows your investment to mirror the overall market movement of the index.
Contracts for Difference (CFDs): This is a complex and potentially risky strategy best suited for experienced investors. CFDs let you speculate on the price movements of the FTSE 100.
Spread Betting: Similar to CFDs, spread betting allows you to speculate on price movements of the FTSE 100. However, spread betting is a tax-efficient option in some regions, but again, carries significant risk.
Futures Contracts: These are agreements to buy or sell the FTSE 100 at a predetermined price on a specific future date. Futures are complex instruments used for hedging or speculation and require a deep understanding of the market.
Buying individual stocks: You can research and directly purchase shares in companies listed on the FTSE 100.
Does the FTSE 100 include international companies?
Yes, the FTSE 100 includes international companies. The London Stock Exchange doesn’t restrict membership based on a company’s headquarters or primary operations. This means some of the largest companies in the FTSE 100 might be multinational corporations with significant business conducted outside the UK
How often do FTSE 100 companies change?
The FTSE 100 companies are reviewed and can potentially change every quarter. This means companies are assessed regularly, and the index composition can be adjusted in March, June, September, and December.
