What Is the FTSE 100?

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The Financial Times Stock Exchange 100 Index, more commonly known as the FTSE 100, is a stock index composed of 100 companies which are listed on the UK’s London Stock Exchange (LSE). In this article, we will explain what the FTSE 100 is, provide a list of FTSE 100 companies and much more!

The FTSE 100 Explained

The FTSE 100 is a stock index, which was first launched in 1984 and is composed of the 100 largest companies by market capitalisation listed on the LSE. In order to be included in the FTSE 100, a company must also meet minimum free float and liquidity requirements.

Each company’s stock is assigned a weighting in the index based on their respective market cap. Simply put, the larger the market cap, the more weight assigned to the stock; the more weight assigned to the stock, the more influence that stock’s share price has on the overall index.

For example, as of 30 June 2022, the top six companies in the FTSE 100 by weight were Shell, Unilever, HSBC, British American Tobacco and Diageo. Between them, they accounted for almost 37% of the entire index.

Which Companies Are in the FTSE 100?

The FTSE 100 constituents are reviewed quarterly (i.e. every three months), at which point some companies may exit and be replaced by new companies. The table below shows the list of FTSE 100 companies as of the 5 October 2022.

Source: London Stock Exchange – FTSE 100 Constituents

FTSE 100 Performance

The FTSE 100 has often been accused of underperforming in recent years, particularly when you compare the UK index to its transatlantic competitor in the US, the S&P 500. But how exactly has the FTSE 100 performed in recent years?

The table below shows the index’s total returns (i.e. including dividend payments) at various intervals over the past five years (information accurate as of 30 September 2022).

Source: FTSE Russell – FTSE 100 Index Factsheet - 30 September 2022

FTSE 100 vs FTSE 250

Whilst many people familiar with the financial markets will have at least heard of the FTSE 100, fewer are acquainted with its junior sibling, the FTSE 250.

Whereas the FTSE 100 is composed of the 100 largest stocks by market capitalisation listed on the LSE, the FTSE 250 is composed of the following 250 companies. Naturally, this means the companies on the FTSE 250 are smaller and less successful than their counterparts in the FTSE 100. However, it also means, by definition, that they have more room for potential growth in the future.

The FTSE 100 is often viewed as the benchmark index for the UK economy. However, it is frequently argued that the FTSE 250 is actually a more accurate reflection as to how the UK is performing.

This is because the FTSE 100 is heavily composed of companies which have a large global presence and, consequently, much of their income is generated from overseas. On the other hand, the FTSE 250 is far more domestically focused and, therefore, tends to be more strongly correlated with the UK economy.

Another consequence of its international nature is that, as much of the revenue generated by FTSE 100 companies is earned in foreign currency, the index tends to have an inverse relationship with the Great British Pound (GBP). This is due to the fact that, when the GBP is weak, the foreign currency earned by FTSE 100 companies buys more GBP, and vice versa.

FTSE 250 Performance

Due to being more reliant on the UK economy, the FTSE 250 has performed considerably worse than the FTSE 100 in recent months, as the UK battles against low economic growth and rising inflation.

Source: FTSE Russell – FTSE 250 Index Factsheet - 30 September 2022

How to Invest in the FTSE 100

It is not possible to invest directly in the FTSE 100. However, there other ways to gain exposure to the stock index.

One option is for investors to buy shares directly in some of the FTSE 100 constituent companies. However, this is not be the most straightforward way to gain exposure to the entire index.

Alternatively, it is possible to buy shares in an index fund which tracks the FTSE 100 by pooling investor money and buying shares in all the companies in the index. These index funds are automatically managed and adjusted to reflect any changes in constituents and their respective weightings.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.