The FTSE 100 is an index made up of the 100 largest companies (by market capitalization) listed on the London Stock Exchange (LSE). They are often called front-line companies, and the index is seen as a good indicator of the performance of major UK listed companies.
What does FTSE mean? The name of FTSE 100 originates when it was owned 50% by the Financial Times and the London Stock Exchange (LSE), therefore FT and SE become FTSE. It also refers to its composition of 100 companies.
Other FTSE indices. In the UK market, the other UK FTSE indices include the FTSE 250 (the next 250 largest companies after the FTSE 100) and the FTSE SmallCap (the smallest companies than those). The FTSE 100 and FTSE 250 together make up the FTSE 350 - add the FTSE SmallCap and you get the FTSE All-Share.
History of the FTSE 100
The FTSE 100 was launched on January 3, 1984 and had a starting value of 1.000,00. Since then, the composition of the index has changed almost beyond recognition, with mergers, acquisitions and disappearances of companies, underscoring the purpose of the index to act as a barometer of market activity. It is changed every quarter to ensure it continues to reflect the top 100 companies.
How is it calculated? The level of the FTSE 100 is calculated using the total market capitalization of the companies that comprise it (and the value of the index) to produce the only figure that is quoted.
Because total market capitalization is affected by individual company stock prices, as stock prices change throughout the day, so the value of the index changes. When the FTSE 100 is "up" or "down," the exchange is trading against the close of the previous day.
The figure you see on the evening news is the closing value of the FTSE 100 for that day. In reality, the index is calculated continuously every day of the week (excluding UK holidays), from 8:00 am (market open) to 16:30 pm (market close).
How the FTSE 100 Affects You
The level of the FTSE 100 affects most people in the UK, even if they don't invest directly for themselves - as pension fund holders, whose investments are likely to be invested in UK stocks, the performance of the index directly affects to the profitability they will receive.
The FTSE 100 is also a good reflection of economic and international events - it will often fall in response to falling markets around the world.
How are the companies in the index measured? Size is measured by market capitalization (or "market capitalization" as the industry prefers to call it), which is a fancy term for what is really just the market value of a company.
For those who want the details, this is found by multiplying the current price of a company's shares by the number of shares in issue or "shares issued" (the number sold to and owned by investors), before multiplying this number by the company's "free float factor" (the free float factor indicates the number of shares that are available to be traded on the market). This results in a value that indicates how much the company is worth based on the market.
The top 100, including some multinationals as well as British companies, are then included in the FTSE 100 and are known as "blue chip" companies (as in the world of poker, where a "blue chip" represents the highest value). Blue chips are mature companies.
What does it mean when it goes up or down?
You'll read or hear "FTSE 100 opened 20 points higher at 7.301" or "FTSE 100 fell 1,5% on the day." Such comments are often followed by mention of a specific stock or industry that caused the profit or loss.
As a company's stock price changes, so will its market capitalization, which means that the overall index will change in value, fluctuating up and down as the share prices of companies do. it's made of. How much it moves depends on the weight of the company in the index.
When calculating the index using market caps, the index is "market-weighted", which means that companies in the FTSE 100 are weighted according to their size. Therefore, changes in the share price of Rio Tinto (one of the largest companies in the FTSE 100) will have a greater effect on the overall index than a company like Tesco, whose market capitalization (and therefore weight in the index) is much smaller.
So, if there is very good news about a certain heavyweight company or industry (perhaps the price of iron ore rises and therefore mining companies, including Rio Tinto, see their share prices go up), this will have an effect on the overall index. Most likely, this type of news will push the index up as long as there is no dire news from another company or industry to offset this gain.
To clarify why the rise or fall of the FTSE is sometimes cited in points, the index was originally released in 1984 and was given an arbitrary starting value of 1.000 points. Today it is worth less than 7.500 points, which means that the top 100 companies have grown almost 7,5 times in the last 35 years (more or less).
What does all this have to do with me?
Well, if you are invested in a fund, your manager could be using something like the FTSE as a reference. In a passive fund, the manager buys the components that are listed in the index and aims to match the performance of that index for you. In an active fund, the manager uses the index as a guide to what to buy and aims to outperform that index. This allows you to evaluate your fund's performance compared to what it would have achieved if you had invested in the index.
Additionally, as the owner of a UK pension fund, some of your pension investments will likely also be invested in UK stocks listed on the FTSE indices. So the performance of the index will have an impact on your investments, as it will if you are invested in an Isa stock and shares.
The FTSE 100 is also considered a good indicator of the health of the UK and international economy (because it encompasses both domestic and international companies). It often moves in response to political or economic events around the world as people become more or less confident (and therefore want to invest or divest) based on such news. It can give a good idea of how investors generally feel, whether optimistic or nervous, which in turn can inform your own decision about whether to invest or not, and where to put or take your money.
So while the FTSE 100 may not make your heart race nearly as much as loving attention from the other side of the table, understanding its purpose will help you navigate the financial markets much better (much more than a low key is likely to do). I flounder anyway).
While the FTSE 100 is a particularly popular index, especially in the UK, there are a number of other important indices. For example, there is also the FTSE 250 (the next 250 largest companies, often more oriented to the domestic market than the FTSE 100) and the FTSE 350 (which is an aggregation of the FTSE 100 and the FTSE 250). Other companies also run their own indices, such as Standard & Poor's, which runs the S&P 500 Index (the 500 largest companies listed on the New York Stock Exchange).
However, the indices are not just lists of companies. Fixed income instruments (bonds, for example) have their own indices; The Bloomberg Barclays Global Aggregate Index is one example. This consists of a large number of fixed income securities including government and corporate bonds, from both developed and emerging markets around the world. Meanwhile, the Bloomberg Commodity Index consists of a list of commodities that include oil, corn, gold, and copper.
The FTSE Group (informally called 'footsie') is a joint venture between the London Financial Times and the London Stock Exchange. The acronym FTSE stands for Financial Times and Stock Exchange and the group's indices comprise the UK's most capitalized companies listed on the London Stock Exchange.
The FTSE 100 was first created in January 1984 with a base level of 1.000 and has since jumped to a level of more than 7.000, as of March 2018. After recovering from the lows reached during the debt crisis European sovereign of late 2010 and early 2011, the index finally surpassed the previous all-time high of 6.950 reached in December 1999 during the height of the internet bubble.
Many international investors view the FTSE indices, and the FTSE 100 in particular, as an indicator of the UK market in general, similar to how American investors view the Dow Jones or S&P 500 indices.
The most popular index maintained by the FTSE Group is the FTSE 100, which consists of the 100 most capitalized companies in the UK listed on the LSE. In addition, the FTSE Group maintains other indices ranging from the FTSE All-Share to so-called ethical indices such as the FTSE4Good Global index that focuses on corporate responsibility.
The most popular indices of the FTSE Group include the FTSE 100, FTSE 250, FTSE 350 and the FTSE All-Share. These indices can be broken down into high-performance, low-performance and ex-IT indices that are computed at the end of the day. For example, the FTSE Group Ethical Indices, collectively known as FTSE4Good, track global markets, Europe, UK, US and other markets.
Some commonly recognized companies that trade on the FTSE 100 include:
BP plc (NYSE: BP)
BHP Billiton plc (NYSE: BBL)
Randgold Resources Ltd. (NASDAQ: GOLD)
Rio Tinto plc (NYSE:RIO)
GlaxoSmithKline plc (NYSE: GSK)
A complete and up-to-date list of indices and their prices can be found on the FTSE Group website.
How to invest in the FTSE 100
There are many different ways for international investors to expose themselves to the FTSE 100 and the other FTSE Group indices. Exchange-traded funds (ETFs) offer an easy way for investors to expose themselves, but none of the FTSE 100 ETFs are listed on U.S. exchanges. American Depository Receipts (ADRs) are also available for some individual components of these indices.
Some common FTSE Group ETFs include:
iShares FTSE 100 (LSE: ISF)
HSBC FTSE 100 ETF (EPA:UKX)
DBX FTSE 100 (LSE: XUKX)
Lyxor FTSE 100 ETF
UBS FTSE 100 ETF
Investors should always keep expense ratios in mind when investing in international ETFs, as they can realize long-term benefits. It is also a good idea to look at the fund's underlying portfolio to see industry or sector concentration risks. For example, the UK has a high concentration of financial services companies compared to many other countries.
In addition to the five ADRs mentioned above, other popular ADRs include:
Vodafone Group (NASDAQ: VOD)
Barclays plc (NYSE:BCS)
Unilever plc (NYSE: UL)
HSBC Holdings (NYSE:HBC)
ARM Holdings (NASDAQ: ARMH)
Investors should note that ADRs may not be as liquid as the version of stocks listed on the London Stock Exchange. Additionally, it is important to remember that these companies may not report to the United States Securities and Exchange Commission (SEC), which can make it difficult to conduct due diligence.
Alternatives to FTSE indices
International investors seeking exposure in the UK have other options as well. Aside from the FTSE Group indices, there are several other ETFs that offer extensive exposure to the region. The indices behind these ETFs include MSCI, BLDRS, STOXX, and HOLDRS among others and each of them offers a unique perspective on portfolio allocation.
Some common UK-focused ETFs include:
MSCI United Kingdom Index Fund (NYSE: EWU)
BLDRS Europe 100 ADR Index Fund (NYSE: ADRU)
STOXX European Select Dividend Index Fund (NYSE: FDD)
SPDR DJ STOXX 50 ETF (NYSE: FEU)
BLDRS Index 100 ADRs of Developed Markets (NYSE: ADRD)
Investors should note that some of these ETFs have a broader exposure than just the UK. For example, they may have significant exposure to European stocks, which could introduce certain risks.
The stock market crash, then. A terrifying precursor to what promises to be a catastrophic period for the world economy? Or a brilliant opportunity for savvy stock investors to make a million?
A bit of both, to be fair. The market correction reflects the earnings shock that many companies will face in the short term. It also offers aspiring stock millionaires an opportunity to maximize the returns on their investments.
The key to making a fortune is buying stocks, not with a view to how they will perform next week, next month, or next year. Astute investors buy companies that are likely to prosper in 10 years (or more). And there are a ton of great FTSE 100 stocks like this that have been swept up in the midst of the broader market crash. This provides bright eagle-eyed investors with opportunities to grab a bargain or two.
A millionaire?
Persimmon (LSE: PSN) is one of Footsie's best cut price stocks that I think could be a millionaire for years to come. Homebuilders' stock prices have fallen in recent months as worsening economic conditions, coupled with the recalls of a large number of mortgage products by lenders, have fueled concerns about a possible collapse of houses.
Following recent price weakness, persimmon is trading at a price / earnings (P / E) ratio of about 12 times. It's a reading that suggests the business is a bargain, then. I'm more interested in the 5% dividend yield that the FTSE 100 company carries for 2020, though. Big returns like this can be invaluable in helping potential millionaires achieve their investment goals. In addition, the FTSE Group maintains other indices ranging from the FTSE All-Share to so-called ethical indices such as the FTSE4Good Global index that focuses on corporate responsibility. Meanwhile, the Bloomberg Commodity Index consists of a list of commodities that include oil, corn, gold, and copper.