FTSE 100 is a registered trademark, owned by FTSE Russell, which is in turn owned by the London Stock Exchange (LSE).
The name refers to an index of the share prices of 100 of the largest companies listed on the LSE. In other words, it’s a list of companies which have their individual prices tracked. The current level of the FTSE 100 s the total value of that list.
The core purpose of an index is to show a total price. Because the companies in the list are highly consistent period to period, this gives a simple and meaningful way of keeping track of the overall price level of the UK stock market.
See our definition of a stock market index article for more information about stock market indexes in general.
What does the FTSE 100 price mean?
The price of the FTSE is expressed as a large number. During the 2010 – 2020 decade, it has moved between a range of 5,000 and 8,000.
But what does this number really mean? Is it a financial sum or something else?
The total value of the FTSE 100 companies was ‘indexed’ at ‘100’ on 3 January 1984.
As the value of those companies increased, so did the value of the ‘100’ indexed value in direct proportion. For example, if the value of those companies doubled, the index would now read as 200.
You’ll see that an index value makes it easy to keep track of the long term performance of a stock market, as it’s a single number for investors to remember.
Fast forward 35 years and the index is now above 5,000. This demonstrates the incredible growth of large corporations during this time period.
Why just 100 companies?
The shares of over 2,600 companies are traded each week on the main market of the London Stock Exchange.
In principle, an index company like FTSE Russell could track the share price of all 2,600 companies on a daily basis.
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However, it would be more time consuming to collect and analyse the price data. The index would also constantly be changing as companies joined the market through an Initial Public Offering (IPO) or were taken off the market through a buyout.
However to get a useful result, index companies simply don’t have to track 2,600 prices.
The size of publicly traded companies can vary enormously. Some listed businesses are worth as little as £50m, whereas the largest companies are worth in excess of £100 billion. That’s a 2,000-fold difference in size.
It follows that the price movements of the tiny companies simply don’t make a dent on the overall value of all companies in the stock market.
In fact, the top 600 companies out of 2,600 represent 98% of the London Stock Market’s total value.
Therefore the FTSE 100 index is large enough to serve its purpose while being small enough to be calculated efficiently.
What you need to know about the FTSE 100
The FTSE 100 index does not account for dividends.
This point will be particularly important to dividend growth investors in the UK.
The FTSE 100 only keeps track of changes in the share price of listed companies. However, from an investor’s perspective, investment returns come from both share price increases and dividends.
FTSE Russell does run an index which does capture the value of these dividends, which it assumes are reinvested into the market. This is called the FTSE 100 Total Return index. I personally find this is more useful when investing in shares or buying a passive index fund which tracks the FTSE 100.
This means that a FTSE 100 chart will always understate investor returns. This is shown very clearly by the following index comparison compiled by ThisIsMoney.co.uk.
As you can see, the effect of receiving (and reinvesting dividends) into the market produces a dramatically steeper rate of return than simply measuring the change in prices alone.
Which companies are in the FTSE 100?
A common misconception is that the FTSE 100 is simply the 100 largest companies on the London Stock Market. This is not the case. To be considered for inclusion, a company must satisfy multiple criteria.
The criteria include:
- Corporate governance standards
- A minimum proportion of the shares of the company are publicly held
- The business must be a real business rather than an investment company
As of 10 April 2020, the following companies were included in the FTSE 100 index, as per the official London Stock Exchange website.
III 3I GRP.
ADM ADMIRAL GRP
AAL ANGLO AMERICAN
AHT ASHTEAD GRP.
AUTO AUTO TRAD
AVV AVEVA GRP
BA. BAE SYS.
BDEV BARRATT DEVEL.
BKG BERKELEY GP.HLD
BHP BHP GROUP
BT.A BT GROUP
BRBY BURBERRY GRP
CCH COCACOLA HBC AG
CPG COMPASS GROUP
CRDA CRODA INTL.
FLTR FLUTTER ENT
HL. HARGREAVES LANS
HSBA HSBC HLDGS.UK
IHG INTERCON. HOTEL
ITRK INTERTEK GROUP
IAG INTL CONSOL AIR
JD. JD SPORTS
JMAT JOHNSON MATTHEY
JET JUST EAT TAKEAW
LAND LAND SECS.
LLOY LLOYDS GRP.
MNG M&G PLC
MRO MELROSE IND
MRW MORRISON (WM)
NG. NATIONAL GRID
NMC NMC HEALTH
PNN PENNON GROUP
PHNX PHOENIX GRP HDG
POLY POLYMETAL INT
RDSA RDS ‘A’
RDSB RDS ‘B’
RB. RECKITT BEN. GP
RTO RENTOKIL INITL.
RIO RIO TINTO
RR. ROLLS-ROYCE HLG
RBS ROYAL BANK SCOT
RSA RSA INS.
SGE SAGE GRP.
SMT SCOTTISH MORT
SVT SEVERN TRENT
SMIN SMITHS GROUP
SKG SMURFIT KAP.
STJ ST.JAMES’S PLAC
SLA STD LIFE ABER
TW. TAYLOR WIMPEY
UU. UTD. UTILITIES
VOD VODAFONE GRP.