ftse_100

The Financial Times Stock Exchange 100 Index (also known as the 'Footsie') is the UK's premier stock market index. Think of it as the headline act for the British stock market. It represents the 100 largest and most traded companies listed on the London Stock Exchange, ranked by their total value, or market capitalization. Launched in 1984, the FTSE 100 is a who's who of UK-listed corporate giants, including household names in banking, oil, pharmaceuticals, and consumer goods. Because it is a capitalization-weighted index, the larger the company, the more its share price movements will affect the index's overall value. Investors and news outlets worldwide watch the 'Footsie' as a key indicator of the health of large UK-listed companies and, by extension, as a barometer for broader market sentiment in Europe. However, it's crucial to remember that many of these companies are global behemoths, earning a large portion of their revenue overseas, making the index more a reflection of global economic trends than just the UK's domestic economy.

The FTSE 100 is composed of the 100 largest eligible companies listed on the London Stock Exchange's main market. The list reads like a global corporate hall of fame, featuring multinational titans such as Shell (energy), AstraZeneca (pharmaceuticals), HSBC (banking), and Unilever (consumer goods). A common misconception is that the FTSE 100 is a pure reflection of the UK's economy. In reality, it's a list of globally-focused companies that just happen to be listed in London. It's estimated that over 75% of the total revenue of FTSE 100 companies is generated outside the UK. This global exposure means the index can be heavily influenced by fluctuations in foreign currencies (like the US dollar) and international economic events.

The FTSE 100 is capitalization-weighted. This means companies with a larger market capitalization have a greater impact on the index's value. Think of it like a tug-of-war team where the heaviest members exert the most pull. If the share price of a giant like Shell moves by 1%, it will have a much bigger effect on the FTSE 100's level than a 1% move in the smallest company in the index. This is different from an equal-weighted index, where every company has the same influence, regardless of its size.

The membership of this exclusive club is not for life. Every quarter, the index is reviewed in a process often called the 'quarterly reshuffle'. Companies are re-ranked by market capitalization.

• Companies whose value has grown enough to place them in the top 90 of UK-listed companies are automatically promoted into the index.
• Conversely, FTSE 100 members that have fallen to 111th position or below are automatically demoted.

This regular “survival of the fittest” mechanism ensures the index remains a relevant snapshot of the largest players on the market.

For followers of value investing, the FTSE 100 is a fascinating, if sometimes treacherous, hunting ground. It's a place to find giants, but size alone doesn't equal value.

The FTSE 100 is the natural habitat of the blue-chip stock. These are large, well-established, and financially sound companies that have often weathered many economic storms. Many of them possess a strong economic moat—a sustainable competitive advantage that protects their long-term profits from competitors. Furthermore, these mature businesses are often reliable payers of dividends, which can be a cornerstone of a value-oriented investment strategy, providing a steady stream of income.

While the index is a great starting point, a true value investor rarely buys the whole index without thought. The core of value investing is bottom-up analysis—picking individual businesses trading for less than they are worth.

• Size is not value: Just because a company is large enough to be in the FTSE 100 does not mean its stock is a good buy. It could be overvalued, facing structural decline, or burdened with debt.
• Popularity can be expensive: The largest companies in the index are, by definition, popular and widely owned. This can sometimes inflate their prices beyond their intrinsic value.
• Concentration risk: A capitalization-weighted index can become dominated by a few mega-companies or a single hot sector. If these fall out of favour, they can drag the whole index down with them.

A savvy investor uses the FTSE 100 not as a shopping list, but as a hunting ground.

• Screening Tool: Use the list of 100 companies as a pre-vetted pool of large, liquid businesses to begin your research.
• Benchmark: Use the FTSE 100's performance as a benchmark to measure your own portfolio of large-cap UK stocks against. Are your individual stock picks outperforming the broader market?

If you simply want broad exposure to the UK's largest companies without picking individual stocks, there are simple and efficient ways to do so.

The most common method is through an index fund or an Exchange-Traded Fund (ETF) that tracks the FTSE 100. These are passive investing vehicles that aim to replicate the performance of the index by holding all 100 stocks in the same proportion as the index itself. This approach offers:

• Instant diversification: You own a small piece of 100 different companies with a single purchase.
• Low Cost: Because these funds are passively managed (no star fund manager is making buy/sell decisions), their management fees are typically very low. Always check the Total Expense Ratio (TER) to understand the annual cost.

Buying a FTSE 100 tracker is a straightforward way to participate in the fortunes of Britain's biggest listed companies.