The Financial Times Stock Exchange 100 Share Index is dedicated to the tracking of the UK’s 100 biggest public companies. The “weight” of these companies is determined through market capitalization. All companies covered by the FTSE 100 (also called Footsie) need to be listed at the London Stock Exchange (LSE).
That considered, it is safe to say that the FTSE 100 could also be defined as a hypothetical portfolio of UK-based blue-chip stocks.
Given the sheer scope of the index, it is considered to provide an accurate picture of the state of the UK’s economy. After all, it does represent some 80% of the market capitalization of the LSE.
Investors looking for exposure to the UK economy therefore like to use the FTSE 100 as their investment vehicle.
FTSE 100 is only one of several indexes created by the Financial Times Stock Exchange Group. The organization is an independent one, the specialty of which is the creation of financial market indices.
The owner of the FTSE Group is the LSE (London Stock Exchange) Group. The latter is also the owner of several other index-focused and financial organizations, such as Borsa Italiana, Russell Indexes and MillenniumIT.
By far the most popular index property of the organization, the FTSE 100 was created in 1985, starting off a base level of 1,000. Nowadays (2019) the FTSE is around the 7,000 level.
How does the FTSE 100 work?
The FTSE Group uses real time calculations to determine the value of the index, in a market capitalization-weighted manner. What this means is that companies with higher market caps carry proportionally bigger weight.
Calculated in real time, the FTSE 100 is updated every 15 seconds. Market capitalization obviously follows the price of the individual company shares, going up and down through the day.
The pool of constituents (the companies making up the index) is not etched in stone. In fact, it is periodically re-considered and adjusted accordingly.
Taking place quarterly, the readjustment process is a rather interesting one. The Wednesday that follows the first Friday of March, June, September and December is when the FTSE constituents are reviewed. The metric used is the value of the companies as presented the night before the review-day.
We have to point it out that – while the FTSE 100 is indeed a UK-focused index – it does in fact feature companies the headquarters of which are located in other countries. That said, the majority of FTSE 100 constituents are indeed UK-based.
As mentioned, companies near the top of the FTSE 100 index exert a bigger influence on the index itself.
BP (British Petroleum) PLC for instance, is 4th by market cap in the index. An upward swing of 1% in the value of BP stock nudged the FTSE 100 up by no less than 2% in February 2019.
Oil- and banking companies seem to dominate the top of the FTSE 100 pops. The biggest market cap company currently featured is Royal Dutch Shell PLC. It is followed by HSBC Holdings PLC and BP PLC.