Introduction
The FTSE 100 is one of the best-known parts of the UK stock market. It tracks 100 of the largest eligible companies listed on the London Stock Exchange. These companies operate in many areas, including banking, energy, healthcare, mining, and retail.
You may hear about the FTSE 100 on the news when share prices rise or fall. Investors also use it to follow large businesses and understand market trends. However, its daily movements do not tell the whole story about the UK economy.
This guide explains what the FTSE 100 means, how it works, and why it matters. You will learn about its companies, dividends, tracker funds, and investment risks. You will also discover how people in the UK can gain exposure to the index without buying it directly.
What Is the FTSE 100?
The FTSE 100 is a stock market index that measures the performance of 100 large eligible companies listed on the London Stock Exchange. It is often used as a guide to the performance of major UK-listed businesses.
A stock market index groups selected shares into one measure. Instead of following many share prices separately, people can use the index to see how a group of companies is performing.
FTSE stands for Financial Times Stock Exchange. The name reflects the index’s history and its links with the Financial Times and the London Stock Exchange.
The index began on 3 January 1984. Today, it is widely followed by investors, financial journalists, businesses, and people learning about investing.
Why Does the FTSE 100 Matter?
The FTSE 100 offers a useful view of some of the largest companies listed in London. Its value changes as the prices of its member shares change.
Investors use it to compare market performance over time. Fund managers may also use it as a benchmark to measure how well an investment performs.
However, the index does not represent every UK business. It mainly tracks large companies, and many smaller firms are not included.
Also, a London listing does not mean a company earns all its money in the UK. Many members operate across several countries. Their results can depend on global demand, exchange rates, and events around the world.
Most importantly, the FTSE 100 is an index, not a company. You cannot buy the index itself as you would buy an ordinary share.
How Does the FTSE 100 Work?
The FTSE 100 follows the market value of its member companies. When their share prices change, the index value can rise or fall.
Each company has a different influence on the index. Larger companies usually have a greater effect than smaller members.
This is because the index uses market capitalisation and applies rules for the shares available to investors.
What Is Market Capitalisation?
Market capitalisation means the total market value of a company’s shares. It is calculated by multiplying the share price by the number of shares in issue.
For example, imagine a company has 100 million shares. If each share costs £5, its market capitalisation is £500 million.
If its share price rises to £6, its market value becomes £600 million, assuming the share count stays the same.
This change can affect the FTSE 100 because the company is part of the index. The size of the effect depends on its index weighting and the index calculation rules.
Why Does the Index Change During the Day?
Share prices move as investors buy and sell shares. News about profits, interest rates, inflation, or world events can influence these decisions.
As a result, the FTSE 100 can move throughout the trading day. It may rise in the morning and fall later, or the other way around.
The index’s membership can also change. FTSE Russell reviews its members on a regular schedule, generally each quarter. Companies may enter or leave when they no longer meet the relevant selection rules.
The review process helps keep the index aligned with its stated purpose.
Which Companies Are in the FTSE 100?
The FTSE 100 includes businesses from several industries. These include financial services, energy, healthcare, mining, consumer goods, telecommunications, and retail.
The companies in the index can change over time. Therefore, always check the latest official list before relying on a company being a current member.
Here are examples of companies listed among the FTSE 100 constituents on the London Stock Exchange’s published list:
| Company | Main business area |
|---|---|
| AstraZeneca | Pharmaceuticals and healthcare |
| Anglo American | Mining and basic materials |
| Aviva | Insurance and financial services |
| Admiral Group | Insurance |
| Associated British Foods | Food, retail, and consumer goods |
| Antofagasta | Mining |
| Auto Trader Group | Online vehicle marketplace |
| Airtel Africa | Telecommunications |
These examples show how different industries can appear in one index. They are not a complete list, and membership can change.
Why Are Different Industries Included?
A mix of industries helps show how different large businesses perform. For example, energy companies may respond to oil and gas prices, while banks may react to interest rates and changes in lending.
Healthcare companies may depend on medicine sales, research, and new treatments. Retail businesses can be affected by consumer spending and household costs.
However, the FTSE 100 is not evenly spread across all sectors. Some industries and large companies can have a greater influence on its value than others.
This means the index can perform well even when some businesses struggle. The reverse can also happen.
How Is the FTSE 100 Calculated?
The FTSE 100 is calculated using a set method. It is not created by simply adding the share prices of its 100 companies together.
The method considers market capitalisation, the shares available for public investment, and index weighting rules.
Understanding Free Float
Free float means the shares that are available for investors to trade, after certain holdings are excluded under the index rules.
For example, some shares may be held by founders, governments, or other long-term owners. Not all such shares are treated as freely available when calculating the index.
Free-float adjustments help reflect the amount of a company’s shares that investors can realistically trade.
How Index Weighting Works
Each eligible company receives a weight based on the index’s calculation rules. A company with a larger adjusted market value generally has more influence than one with a smaller value.
Imagine two companies in a simplified, hypothetical index. One has a much larger index weight than the other. If both share prices rise by the same percentage, the larger company will usually make a greater contribution to the index’s movement.
This is an example to explain weighting, not a calculation of the actual FTSE 100.
What Do Index Points Mean?
The FTSE 100 is quoted in points. These points show the index’s calculated level, not a cash price in pounds.
A rise of 100 points does not mean every investor has earned £100. Nor does it automatically mean the index has risen by 100 per cent.
To understand a percentage move, compare the change with the starting index level. For example, a move from 8,000 to 8,080 points equals a 1% rise.
The published index level follows its official calculation method, so changes in member share prices and index adjustments can affect the result.
What Makes the FTSE 100 Rise or Fall?
The FTSE 100 moves in response to many factors. No single factor explains every market movement.
Common influences include:
- Company profits: Better or worse business results can affect share prices.
- Interest rates: Changes in borrowing costs can influence company profits and investor choices.
- Inflation: Rising prices can increase business costs and reduce household spending power.
- Economic growth: Strong or weak growth can change expectations for sales and profits.
- Investor confidence: Worries about the future can lead investors to sell shares.
- Commodity prices: Oil, gas, and metal prices can affect energy and mining companies.
- Currency movements: Changes in the pound can affect overseas earnings when converted into sterling.
- Global events: Wars, trade disputes, and political changes can influence markets.
Why Does the Pound Matter?
Many large companies listed in London earn money overseas. When the pound changes in value, the sterling value of their overseas earnings may also change.
For example, a company that earns dollars abroad may report more pounds from the same dollar income when the pound weakens against the dollar. The full effect depends on its costs, debts, currency arrangements, and other factors.
A weaker pound does not automatically make every FTSE 100 company more profitable. Nor does it guarantee that the index will rise.
The important point is that the FTSE 100 is influenced by events both inside and outside the UK.
What Is the Difference Between the FTSE 100 and FTSE 250?
The FTSE 100 and FTSE 250 are separate UK stock market indices. Both follow groups of eligible companies listed in London, but they focus on different company sizes.
The FTSE 100 tracks 100 of the largest eligible companies by market value under its rules. The FTSE 250 generally tracks the next 250 eligible companies below the FTSE 100 in the FTSE UK Index Series.
| Feature | FTSE 100 | FTSE 250 |
|---|---|---|
| Number of companies | 100 | 250 |
| Main focus | Larger eligible companies | Companies generally smaller than FTSE 100 members |
| Business exposure | Many companies earn money worldwide | Often more exposed to UK conditions, but this varies |
| Industries | Covers several major sectors | Also covers several sectors |
| Market movements | Can rise or fall | Can rise or fall |
| Investment risk | Depends on holdings and market conditions | Depends on holdings and market conditions |
The FTSE 250 may respond differently to changes in UK spending and economic growth. However, its companies can also have overseas activities.
Neither index is guaranteed to perform better than the other. Their results depend on company performance, market prices, and wider conditions.
How Can You Invest in the FTSE 100?
You cannot buy the FTSE 100 index directly. However, UK investors can gain exposure through funds designed to track it.
These funds hold shares or use other methods to follow the index’s performance. Before choosing one, understand its charges, risks, and investment approach.
1. FTSE 100 Index Funds
An index fund aims to follow a chosen market index. A FTSE 100 tracker fund typically seeks to match the performance of the FTSE 100, before or after relevant costs, depending on its stated method.
The fund may hold shares in the index companies. Some funds use other methods to track the index.
2. FTSE 100 ETFs
An exchange-traded fund, or ETF, is a fund that trades on a stock exchange. Many FTSE 100 ETFs aim to track the index.
You can normally buy and sell ETF units through an investment platform during the relevant trading hours. Prices can change throughout the day, and dealing costs may apply.
Not every ETF works in the same way. Read its official factsheet and key information document before investing.
3. Stocks and Shares ISAs
A Stocks and Shares ISA is an investment account that can hold eligible investments, including shares and funds. Under current UK rules, qualifying investment income and gains within an ISA receive tax advantages.
The ISA allowance and tax rules can change. Check the latest guidance from GOV.UK or MoneyHelper before opening an account or making decisions.
A tax advantage does not protect your money from market losses. The value of your investments can still fall.
4. General Investment Accounts and Pensions
A general investment account can provide another way to hold funds or shares. Tax may apply to income or gains, depending on your circumstances and the current rules.
Some workplace and personal pension arrangements also offer funds that invest in UK shares or track an index. The choices available depend on the pension scheme.
Compare account charges, investment choices, access rules, and tax treatment. Do not choose an account based only on one advertised benefit.
What Is a FTSE 100 Tracker Fund?
A FTSE 100 tracker fund aims to follow the index rather than select shares based on a manager’s personal market views.
The fund’s goal is to deliver a return that follows its chosen benchmark as closely as its method and costs allow. It does not guarantee a profit.
Index Funds and ETFs: What Is the Difference?
An index fund describes a fund’s investment approach. An ETF describes a type of fund that trades on an exchange.
Some ETFs are index trackers, and some index funds are not ETFs. The exact structure depends on the product.
Traditional index funds may be bought or sold at a price calculated at set times, while ETFs usually trade during exchange hours. The details depend on the fund and platform.
What Are Fund Charges?
Funds can charge an annual fee for managing the investment. Your platform may also charge an account fee or dealing fee.
Even small charges can reduce returns over time. Compare the fund’s ongoing charges, trading costs, and any other fees before investing.
Why Might a Fund Not Match the Index Exactly?
A tracker fund’s return may differ from the index’s published return. This is known as tracking difference.
Possible reasons include fund charges, trading costs, cash held by the fund, tax on certain income, and the method used to copy the index.
Also check whether the fund tracks a price index or a total return index. A price index reflects share price movements, while a total return measure also accounts for dividends under its stated method.
These details matter when comparing a fund with the FTSE 100 or with another investment product.
Does the FTSE 100 Pay Dividends?
The FTSE 100 itself does not pay dividends directly to investors. Dividends are payments that some companies make to their shareholders, usually from profits or other available funds.
If you own shares in a company that pays a dividend, you may receive a payment when you meet the relevant conditions. If you invest through a fund, you may receive distributions depending on the fund’s rules.
Some funds pay out income. Others reinvest it within the fund. Check the product documents to understand which approach it uses.
What Is Dividend Yield?
Dividend yield compares a company’s annual dividend with its share price, usually expressed as a percentage.
For example, if a share costs £10 and the company pays £0.40 in annual dividends, its dividend yield is 4%, assuming the dividend remains unchanged.
This is a simple hypothetical example, not a current FTSE 100 yield.
A higher yield does not always mean a better investment. It may reflect a falling share price or concern that future payments could be reduced.
Companies can cut or stop dividends. Investors should not treat dividend income as guaranteed.
Price Returns and Total Returns
Price return measures the change in the value of shares or an index. Total return also accounts for dividends, based on the method used.
This distinction matters because dividends can form an important part of long-term investment results. When comparing funds or index performance, check that you are comparing the same type of return.
Is the FTSE 100 a Good Investment?
The FTSE 100 may suit some investment goals, but it is not right for everyone. Its suitability depends on a person’s goals, time horizon, ability to accept losses, and other investments.
Possible Benefits
- Exposure to large companies: A tracker fund can give access to many companies through one investment.
- Simple access: Some funds allow investors to follow the index without choosing individual shares.
- Potential dividend income: Some member companies pay dividends, though payments can change.
- A familiar benchmark: The index can help investors follow the performance of large London-listed businesses.
Possible Drawbacks
- Market losses: The index can fall, and investors may receive less than they invested.
- Sector concentration: Some industries and large companies can have a strong influence on its performance.
- Currency exposure: Overseas earnings can be affected by exchange rates.
- Limited market coverage: The index does not cover every UK company or the wider global market.
- Inflation: Inflation can reduce the spending power of investment returns.
- Costs: Fund and platform charges can reduce what investors receive.
A beginner should understand these points before making an investment. It can also help to learn about diversification, which means spreading investments across different assets, sectors, and markets.
The FCA explains that diversification can help manage risk, but it cannot remove every risk. Past performance also does not guarantee future results.
What Are the Risks of Investing in the FTSE 100?
Every share-based investment carries risk. Buying a fund that tracks 100 companies can spread exposure across businesses, but it does not remove the chance of losing money.
Market Risk
The whole stock market can fall because of economic worries, global events, or changes in investor confidence. A tracker fund will usually reflect such movements.
Company and Sector Risk
A company may report poor results, lose customers, or face higher costs. If several large companies in the same sector struggle, their combined effect can be important.
Currency Risk
Overseas business can expose companies and investors to changes in currency values. The effect varies between businesses and funds.
Inflation Risk
If investment returns do not keep pace with inflation, the money may buy less in the future. This matters when planning for long-term goals.
Dividend Risk
Companies may reduce or cancel dividend payments. A fund’s income can therefore change over time.
Short-Term Price Swings
Share prices can move sharply over short periods. Money needed soon may not be suitable for an investment that can fall in value.
Fund and Platform Costs
Charges reduce the amount of money left for investors. Review all fees, including annual fund charges and platform or dealing costs.
Before investing, consider whether you can afford a loss and whether the investment fits your wider financial plan.
What Are the FTSE 100 Trading Hours?
The London Stock Exchange’s regular trading hours are generally 8:00 am to 4:30 pm UK local time on trading days. Public holidays and special sessions can affect the schedule.
The FTSE 100 index can be updated during the trading day as its member share prices change. However, the price shown on a website may not be live.
Live Prices and Delayed Data
Some websites provide real-time market information, while others display delayed quotes. A delay means the displayed price may not reflect the latest market movement.
Always check the time and date shown beside a quote. A published closing level is also different from a live intraday level.
For reliable details, consult the London Stock Exchange’s official website. Do not assume that every chart or search result displays real-time data.
How to Follow the FTSE 100
You can follow the index through several reliable sources.
- London Stock Exchange: Check index information, constituent companies, and market data.
- FTSE Russell: Learn about the index’s purpose, methodology, and review process.
- Reputable financial news websites: Read reports about market movements and company results.
- Investment platforms: Check fund prices, holdings, charges, and relevant market information.
- Index charts: Compare movements over different periods, while checking whether prices are live or delayed.
When reading a market report, check its publication date. Make sure any quoted index level refers to the correct day and time.
It is also useful to distinguish a daily price change from a long-term return. One day’s rise or fall does not tell you how an investment will perform in the future.
Common FTSE 100 Mistakes to Avoid
Beginners can misunderstand the index in several ways. These common mistakes are easier to avoid when you understand how it works.
Mistake 1: Thinking you can buy the index directly. The index is a measure, not a share. Investors usually gain exposure through suitable funds or related products.
Mistake 2: Assuming every company earns money in the UK. Many members operate worldwide. Their results may depend on overseas markets and currency movements.
Mistake 3: Confusing points with percentages. Points show the index level. A percentage measures the size of a change relative to the starting value.
Mistake 4: Ignoring charges. Fund, platform, and dealing costs can reduce returns. Read the fee details before investing.
Mistake 5: Treating dividends as guaranteed. Companies can reduce or stop payments. Do not plan on a fixed dividend unless the product terms genuinely support it, and remember that market risks remain.
Mistake 6: Assuming past performance predicts the future. A strong period does not guarantee another one. Review risks as well as past results.
Mistake 7: Believing the index represents the whole economy. It tracks large eligible companies, not every business, worker, or industry in the UK.
Mistake 8: Investing without understanding the risks. Learn how the investment works, when you may need the money, and what a fall in value could mean for you.
Taking time to understand these points can help you make more informed decisions.
Frequently Asked Questions About the FTSE 100
What does FTSE 100 stand for?
FTSE stands for Financial Times Stock Exchange. The FTSE 100 is an index that tracks 100 of the largest eligible companies listed on the London Stock Exchange.
What is the FTSE 100 in simple terms?
It is a measure of how a group of large London-listed companies is performing. Its value changes as the prices of its member shares change.
How many companies are in the FTSE 100?
The index contains 100 companies. Its membership can change during scheduled reviews as companies enter or leave under the index rules.
Can I buy the FTSE 100 directly?
No. The index is a measure, not an investment product. You can gain exposure through funds or ETFs that aim to track it.
What is the difference between the FTSE 100 and FTSE 250?
The FTSE 100 focuses on 100 of the largest eligible companies. The FTSE 250 generally covers the next 250 eligible companies by market value, subject to the index rules.
Does the FTSE 100 pay dividends?
The index does not pay dividends directly. Some companies in it pay dividends to their shareholders, and some tracker funds pass income to investors or reinvest it.
Can the FTSE 100 lose money?
Yes. The index can fall when share prices decline. An investment fund that tracks it can also lose value, so investors may get back less than they put in.
How can I invest in a FTSE 100 tracker fund in the UK?
You can compare tracker funds through an investment platform, fund provider, or suitable investment account. Check fees, fund documents, tax rules, and risks before investing.
Is the FTSE 100 a good investment for beginners?
It can be one way to learn about investing in large companies, but it is not suitable for everyone. Beginners should consider their goals, time horizon, risk tolerance, and wider diversification.
What time does the FTSE 100 open?
The London Stock Exchange’s regular trading session generally starts at 8:00 am UK local time on trading days. Check official schedules for public holidays and special sessions.
Why does the FTSE 100 rise and fall?
It changes as the share prices of its member companies move. Company results, interest rates, inflation, currency movements, and global events can all influence prices.
Are FTSE 100 returns guaranteed?
No. Share prices and dividends can change, and investments can lose value. Past performance does not guarantee future returns.
Conclusion
The FTSE 100 is a key measure of the performance of 100 large eligible companies listed on the London Stock Exchange. Its value changes with share prices, company results, and wider market conditions. The FTSE 250 follows a different group of companies, so the two indices can perform differently.
UK investors cannot buy the index itself, but they may gain exposure through a suitable tracker fund or ETF. Before investing, compare charges, understand how dividends work, and consider the risks.
Use trusted sources to check market data and fund details. Remember that investments can fall as well as rise, and you may get back less than you put in. Take time to understand your options before making a financial decision.
Note: This article is for general information only and is not financial advice. If you need advice for your own circumstances, consider speaking to a regulated financial adviser.
