You’ve likely heard the FTSE 100 mentioned in financial news, but what exactly is it, and how does it work? This guide breaks it down for you.
What is the FTSE 100?
The FTSE 100, often referred to as the ‘Footsie,’ is a stock market index that tracks the 100 largest companies listed on the London Stock Exchange (LSE) by market capitalisation.
‘FTSE’ stands for ‘Financial Times Stock Exchange,’ a name that stems from its original joint ownership by the Financial Times and the London Stock Exchange.
Understanding the FTSE 100 can be a great starting point for those new to investing, as it provides insight into the performance of major UK-listed companies.
How does the FTSE 100 work?
You might have noticed the FTSE 100’s value fluctuating throughout the day. This movement reflects changes in the combined market capitalisation of its constituent companies. Since these firms are publicly traded, their values shift based on share price fluctuations.
At the end of each trading day, the FTSE 100’s closing value is published, summarising its overall performance.
Eligibility for the FTSE 100
Not all companies are eligible to be included in the FTSE 100.
Not all companies qualify for inclusion in the FTSE 100. To be eligible, a company must:
- Be a public limited company listed on the London Stock Exchange.
- Meet the index’s minimum liquidity requirements.
- Rank among the top 100 companies by market capitalisation.
How Companies Are Weighted in the FTSE 100
Once included in the index, a company’s ranking is determined using free-float adjusted market capitalisation. This differs from full market capitalisation as it only accounts for shares available for public trading, excluding restricted or closely held stock.
- Full market capitalisation determines whether a company is eligible for inclusion.
- Free-float adjusted market capitalisation determines a company’s weighting within the index.
Larger weightings mean a company has a greater influence on the overall FTSE 100 performance.
How Often Is the FTSE 100 Reviewed?
The composition of the FTSE 100 changes over time as company valuations fluctuate. To account for this, the index undergoes a review every quarter.
Companies ranked below 110 in market capitalisation may be removed, while those ranked at 90 or higher in the FTSE 250 (the next 250 largest companies) may be promoted. This buffer helps minimise frequent changes within the index.
Which Companies Are in the FTSE 100?
The FTSE 100 consists of the largest UK-listed companies by market capitalisation. Some well-known members include:
- Aviva
- HSBC Holdings
- Royal Dutch Shell
- Tesco
- Vodafone Group
What Is the FTSE 100’s Value?
If you’re considering investing in the FTSE 100, you’ll likely want to keep track of its current value.
The FTSE 100’s value fluctuates daily—and often multiple times throughout the day.
The market’s value isn’t a share price but rather an index figure reflecting the performance of its companies. This figure is calculated using the following formula:
Share price × Number of shares × Free-float adjustment factor
The index’s value updates throughout the trading day and is widely available on financial news websites and the London Stock Exchange’s platform.
Why Is the FTSE 100 Important?
The FTSE 100 serves as a barometer for the UK economy and investor confidence. It responds to political and economic events, making it a crucial indicator for analysts and policymakers.
For example, during the onset of the COVID-19 pandemic in early 2020, the FTSE 100 dropped by over 2,400 points in a single month, reflecting widespread economic uncertainty.
How Does the FTSE 100 Affect You?
Even if you don’t invest directly in the stock market, the FTSE 100 can influence your financial situation. For instance:
- Pension funds often have substantial exposure to FTSE 100 companies.
- A significant decline in the FTSE 100 can indicate an impending recession, potentially affecting employment and wages.
Can You Invest in the FTSE 100?
While you cannot buy shares in the FTSE 100 itself, you can invest in its performance through index funds or exchange-traded funds (ETFs) that track it.
Additionally, investors can buy shares in individual FTSE 100 companies via share dealing platforms. For more details, check the London Stock Exchange website or explore top UK-based investment platforms.
Frequently Asked Questions
What Does FTSE Stand For?
FTSE stands for ‘Financial Times Stock Exchange.’ The FTSE 100 comprises the largest 100 companies on the London Stock Exchange by market capitalisation.
How Is the FTSE 100 Calculated?
The FTSE 100’s value is calculated using:
Share price × Number of shares × Free-float adjustment factor
What Are the FTSE 100’s Trading Hours?
The FTSE 100 follows the London Stock Exchange’s trading hours:
- Open: 8:00 AM UK time
- Close: 4:30 PM UK time
It remains closed on weekends and during stock market holidays.
By understanding the FTSE 100, you can better grasp how the UK stock market functions and make more informed investment decisions.
What industries make up the FTSE 100?
The FTSE 100 includes companies from a diverse range of sectors. As of October 2024, the sector breakdown is as follows:
| Industry | Companies | FTSE 100 Weighting |
| Technology | 3 | 1.01% |
| Telecommunications | 3 | 1.32% |
| Healthcare | 6 | 13.71% |
| Banks | 5 | 11.48% |
| Financial Services | 9 | 5.93% |
| Insurance | 7 | 3.27% |
| Real Estate | 5 | 1.45% |
| Consumer Products & Services | 6 | 3.30% |
| Media | 4 | 4.50% |
| Retailers | 6 | 1.53% |
| Travel & Leisure | 5 | 1.68% |
| Food Beverage & Tobacco | 5 | 7.08% |
| Personal Care Drug & Grocery Stores | 5 | 9.31% |
| Industrial Goods & Services | 17 | 11.54% |
| Basic Resources | 6 | 7.41% |
| Chemicals | 1 | 0.29% |
| Energy | 2 | 10.70% |
| Utilities | 5 | 4.49% |
Which are the 10 largest companies in the FTSE 100?
Based on market capitalization, the top 10 largest companies in the FTSE 100 as of October 2024 are:
| Company | Industry | FTSE 100 Weighting |
| AstraZeneca | Healthcare | 8.55% |
| Shell | Energy | 7.52% |
| HSBC Holdings | Banks | 6.10% |
| Unilever | Personal Care Drug & Grocery Stores | 5.87% |
| RELX | Media | 3.23% |
| BP | Energy | 3.06% |
| Rio Tinto | Basic Resources | 2.92% |
| GSK | Healthcare | 2.84% |
| British American Tobacco | Food Beverage & Tobacco | 2.77% |
| Diageo | Food Beverage & Tobacco | 2.70% |