The FTSE 100 is the most well-known index in the UK. It is calculated and published in real-time from market open (8 a.m.) to market close (4:30 p.m.) every weekday, excluding public and bank holidays.
Comprising the largest and most influential companies listed on the London Stock Exchange, the FTSE 100 not only reflects the performance of corporate giants but also serves as a mirror to the broader economic landscape – capturing the hopes, fears, and aspirations of seasoned and novice investors.
So, what is the FTSE 100, how is it calculated, and why is it important?
What Is The FTSE 100?
The FTSE (Footsie) 100 is a stock market index that comprises the 100 largest companies traded on the London Stock Exchange (LSE). It measures the performance of these companies and is often used as a gauge for the health of the UK economy.
The FTSE 100 was launched in January 1984 and forms part of the FTSE UK Index Series. The index’s name and abbreviation came about through the joint ownership between the Financial Times (FT) and the London Stock Exchange (LSE). ‘FT’ and ‘SE’ = ‘FTSE’ (Financial Times Stock Exchange). The ‘100’ represents the number of companies held in the index.
Other indices that form part of the FTSE UK Index Series include:
- FTSE 250 – the following 250 companies after those in the FTSE 100.
- FTSE All-Share – the aggregate of the FTSE 100, FTSE 250 and FTSE Small Cap indices. The FTSE All-Share index tracks 98-99% of UK public companies.
How Is The FTSE 100 Value Calculated?
The FTSE 100 is a market capitalisation-weighted index. This means that the percentage that any individual company takes up is determined by its market capitalisation (market cap) – the value of all its shares in circulation.
To find a company’s index weighting, you take its market cap, divide it by the index’s market cap (the total market cap of all the companies in the index) and multiply by 100. If a company has a market cap of £100 million and the index has a total market cap of £1 billion, that company’s index weighting would be 10% (£100 million / £1 billion x 100).
Because the index tracks the performance of the 100 largest UK companies, its value changes as the individual companies’ share prices change. When overall share prices rise, so does the index’s value. Similarly, its value falls when overall share prices fall.
However, not all companies have the same effect on the FTSE 100’s value – a company’s weighting determines the extent of its influence. So, a company with a 10% weighting would affect the index proportionately more than a company with a 2% weighting.
Why Is The FTSE 100 Important?
As alluded to earlier, the FTSE 100 is often used to gauge the health of the UK economy. When the index performs well, it suggests a healthy and growing economy, whereas poor performance can indicate economic concerns and uncertainties.
Other reasons include the following.
Investment Benchmark
For investors, the FTSE 100 acts as a benchmark to compare their portfolios against.
Fund managers and institutional investors compare their returns against the index’s, making it a standard for evaluating portfolio performance. If the index outperforms the investor’s hand-picked portfolio, it would’ve been better to invest in the index.
The FTSE 100 can also be used as a yardstick to compare potential investments. If the index is forecast to grow at 10% per year for the next five years and an individual stock is only expected to grow by 4% over this same time:
- You would be better off investing in a fund that tracks the FTSE 100 if you wish to grow with the market
- Or you would look for a company with higher growth forecasts than the FTSE 100 if you want to outperform the market.
International Comparisons & Diversification
The FTSE 100 is one of the world’s major stock indices. Its performance gives investors insights into how the UK market compares to its economic counterparts, like the US and Europe.
If the FTSE 100 performs better than other indices for a prolonged period, investors may diversify into UK stocks to benefit from this growth. By purchasing a fund that tracks the index, international investors can own pieces of the 100 largest UK companies without owning them individually.
Top 5 FTSE 100 Companies and Sectors
The companies in the FTSE 100 index are reviewed every quarter – in March, June, September and December. At these quarterly reviews, company weightings are updated, some companies are removed as they no longer meet the index’s requirements, and some new ones are added.
As of 30th September 2024, the top five UK companies by market cap are as follows.
| Company Name | Sector | Market Cap (£m) | Index Weighting (%) |
| AstraZeneca | Pharmaceuticals and Biotechnology | 173,554 | 8.55 |
| Shell | Oil Gas and Coal | 152,589 | 7.52 |
| HSBC Holdings | Banks | 123,904 | 6.10 |
| Unilever | Personal Care Drug and Grocery Stores | 119,210 | 5.87 |
| RELX | Media | 65,569 | 3.23 |
| Totals | 634,826 | 31.27 | |
As of 30th September 2024, the top five UK supersectors by market cap are as follows.
| Supersector Name | No. of Supersector Constituents | Net Market Cap (£m) | Sector Weighting (%) |
| Health Care | 6 | 278,247 | 13.71 |
| Industrial Goods and Services | 17 | 234,178 | 11.54 |
| Banks | 5 | 233,074 | 11.48 |
| Energy | 2 | 217,157 | 10.70 |
| Basic Resources | 6 | 150,426 | 7.41 |
| Totals | 36 | 1,113,082 | 54.84 |
Supersector Breakdown
Supersectors separate markets into sectors, enabling the comparison of companies across classification levels and national boundaries.
The system used to categorise companies into these groupings is called the Industry Classification Benchmark (ICB). This framework separates entire markets into industries, industries into supersectors, supersectors into sectors and sectors into subsectors.
As per the ICB, the above supersectors include companies in the following sectors.
- Health Care: Health Care Providers, Medical Equipment and Services, and Pharmaceuticals and Biotechnology.
- Industrial Goods and Services: Aerospace and Defence, Electronic and Electrical Equipment, General Industrials, Industrial Engineering, Industrial Support Services, and Industrial Transportation.
- Banks: Banks
- Energy: Oil Gas and Coal, and Alternative Energy.
- Basic Resources: Industrial Materials, Industrial Metals and Mining, and Precious Metals and Mining.
For the complete list of ICB categories, visit the LSEG website and download ‘ICB Codes & Descriptions’ or click here.
Summary
The FTSE 100 is a stock market index that tracks the performance of the 100 largest UK companies by market cap. It was launched in January 1984 and has often been used to gauge the health of the UK economy. The index is also used to compare the market performance of other economies and as a benchmark for investors to compare their portfolio returns.
The index is reviewed quarterly (in March, June, September and December), where company weightings are updated, some companies are removed, and new ones are added.
As of September 2024, the top five companies in the index (AstraZeneca, Shell, HSBC Holdings, Unilever and RELX) form 31% of the index.
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