What does the “FTSE” (usually called “Footsie”) actually means? That is simple, it stands for the Financial Times Stock Exchange. This tells you that there were two organizations involved in putting in the early 1980s, the Financial Times Newspaper Group and the Stock Exchange. Now the FTSE 100 is all coordinated by the FTSE group.
Ok, but, what does the 100 mean? The 100 means, refers to the 100 biggest companies that are publicly listed in the UK market, these are often referred to as Blue Chip Companies.
What’s the function of it?
The FTSE 100 is what we call an index. Essentially what it means is that it monitors the performance of those top 100 companies as a collective group, as opposed to each individual company.
A financial index is simply a measurement of a section of the overall stock market. They tend to be used to gauge how a certain market segment is doing.
For example, the FTSE 100 contains the top 100 UK publicly listed companies by market capitalization. These companies are grouped together and their combined value is tracked.
Some other examples; the Techmark 100, is a UK index that tracks technology companies. El Dow Jones, this index was originally comprised of heavy industry sector companies.
So indexes, are (in simple words) a way to measure the average value of a group of stocks over time.
When the FTSE 100 started, in 1984, it was given a notional value of a thousand points. Now, that number of a thousand goes up or down depending on how well those hundred companies perform.
As it stands today, the FTSE 100 is about 6,800 points, so that means that essentially it’s grown from a 1,000 points in 1984 to 6,800 points nowadays, which really means that those top 100 companies have grown by (more or less) 530 % over that time period.
What are some of the uses of the FTSE 100? Why do we have these indexes?
– We have them, first of all, to get a quick snapshot of equity market activity an accurate, quick snapshot of which shares are moving, by how much, and so on.
– It really is a useful performance benchmark for investors. Let’s say you are running a portfolio that’s got blue chip securities in it, you’d want to know how are you doing. A common way to do that is to compare your performance to an index, made up of say the top 100 companies in the UK market, well, that’s the FTSE 100.
The London Stock Exchange:
The London Stock Exchange runs a number of indices, as do other stock exchanges around the world. One of the most commonly quoted: FTSE 100, FTSE 250, FTSE 350, FTSE SmallCap, combining the mentioned before, you get the FTSE All Share.
What index you use, depends on what you’re trying to benchmark. If you’re investing in small caps, illiquid, riskier stocks, you’ll use the SmallCap Index as your benchmark. If you’re looking at mid caps, maybe the FTSE 250. The index you pick, depends on what you are investing in.
The FTSE 100 constituents / companies
All of the companies in the FTSE 100 Index are part of the London Main Market. The FTSE 100 index comprises the largest 100 companies, together they make up about 81% of the total value of all of the companies in the UK Main Market.
The next 250 companies by size, and mid-caps, are included in the FTSE 250 index, and by value, they represent about 15% of the total value of the UK Main Market. So together, the FTSE 100 and the FTSE 250 taken together are known as the FTSE 350 index, and after that they make about 95% of the value of all the companies in the market.
HSBC is the largest company (by market cap.) of the FTSE 100 Index
The FTSE SmallCap is the next group of companies, taken together these companies make up about 2% of the market. If we combine the FTSE 100, the FTSE 250 and the FTSE SmallCap, then we get the index called FTSE All-Share Index.
There are yet even more companies, that are far too small to be in any of these indexes mentioned above, they sit in what's known as the FTSE Fledging Index, all these companies together make up the Main Market.
So, as mentioned before, the FTSE is composed of 100 companies, here are the top 10 by market capitalization order: - HSBC Holdings (HSBA) - Royal Dutch Shell (RDSA+RDSB) - BP (BP) - British American Tobacco (BATS) - Rio Tinto (RIO) - GlaxoSmithKline (GSK) - AstraZeneca (AZN) - Diageo (DGE) - Vodafone Group (VOD) - Glencore (GLEN)