Financial Times-Stock Exchange 100 Share Index (FT-SE 100, Footsie)

3 key takeaways

• The FTSE 100 is a benchmark index tracking the performance of the 100 largest companies on the London Stock Exchange.
• It is widely used by investors and fund managers as an indicator of the health of the UK stock market and economy.
• The index includes major companies across various sectors, providing a comprehensive view of the UK market.

What is the FTSE 100?

The FTSE 100, or the Financial Times-Stock Exchange 100 Share Index, is the most widely recognized stock market index in the United Kingdom. It was introduced on January 3, 1984, and has since become a key indicator of the performance of the UK equity market. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.

The FTSE 100 includes the 100 largest companies listed on the LSE based on market capitalization. These companies, known as blue-chip stocks, represent a diverse range of industries, including finance, healthcare, energy, consumer goods, and technology. The index is calculated in real-time and is updated every 15 seconds during trading hours.

Components and calculation

The FTSE 100 is a market capitalization-weighted index, meaning that each company’s weight in the index is proportional to its total market value. This ensures that larger companies have a greater impact on the index’s overall performance. The formula for calculating the index is:

[ \text{FTSE 100 Index} = \frac{\sum (\text{Share Price} \times \text{Number of Shares})}{\text{Index Divisor}} ]

The index divisor is a figure used to maintain the continuity of the index over time, accounting for changes such as stock splits and corporate actions.

Importance and usage

The FTSE 100 serves several critical functions in the financial markets:

• Benchmarking: It is widely used as a benchmark to evaluate the performance of UK-focused investment portfolios and funds. Investors compare their portfolio returns to the FTSE 100 to assess their investment strategies.
• Market sentiment: The index is a barometer of the UK economy and investor sentiment. Significant movements in the FTSE 100 can reflect changes in economic conditions, political events, and global market trends.
• Investment products: Various financial products, such as exchange-traded funds (ETFs) and index funds, are designed to track the performance of the FTSE 100, allowing investors to gain exposure to the UK’s largest companies.

Historical performance

The FTSE 100 has experienced various market cycles, including periods of growth and decline. Historical data from the index provides insights into long-term market trends and economic conditions. Key events, such as the financial crisis of 2008 and the Brexit referendum in 2016, have significantly impacted the index’s performance, highlighting its sensitivity to global and domestic factors.

Related topics

To further understand the FTSE 100 and its role in financial markets, consider exploring these related topics:

• FTSE All-Share Index: A broader index that includes the FTSE 100, FTSE 250, and FTSE SmallCap indices.
• Market Capitalization: Understanding how the size of a company is measured and its importance in index calculations.
• Stock Market Indices: An overview of different indices worldwide and their significance in financial markets.
• Investment Strategies: Techniques and strategies used by investors to achieve their financial goals.

The FTSE 100 is a crucial indicator of the UK equity market’s performance, offering valuable insights for investors and analysts. Exploring these related topics can provide a deeper understanding of stock market indices and their impact on investment decisions.