FTSE 100 Index

FTSE 100 Index
Johnlexcameron · Public domain · source
Name	FTSE 100 Index
Type	Stock market index
Launch	1984
Operator	FTSE Russell
Constituents	100

FTSE 100 Index The FTSE 100 Index is a leading London Stock Exchange benchmark created in 1984 that tracks the largest 100 companies by market capitalization listed in the United Kingdom and Ireland. It is widely cited alongside indices such as the Dow Jones Industrial Average, S&P 500, Nikkei 225, DAX, and CAC 40 as a barometer for UK capital markets and investor sentiment. Major financial institutions like London Stock Exchange Group, Bank of England, HSBC, Barclays, and BlackRock regularly reference the index in reports, while pension funds including Legal & General and asset managers such as Vanguard Group and Schroders use it for benchmark exposure.

History

The index was introduced by the Financial Times and London Stock Exchange in 1984 and maintained by FTSE Russell, itself part of the London Stock Exchange Group. Its establishment followed market reforms influenced by events like the Big Bang (1986) and policy shifts under the Thatcher ministry. Early constituent firms included legacy companies such as Royal Dutch Shell, GlaxoSmithKline, BP, British Petroleum, and Vodafone Group, reflecting sectors dominated by conglomerates like Unilever. Through the 1990s and 2000s the index evolved amid corporate actions involving Rio Tinto, Tesco, Barclays, Lloyds Banking Group, and Royal Mail, and reacted to global crises such as the 1997 Asian financial crisis, the Global Financial Crisis, and the European sovereign debt crisis. Recent history features shifts from energy and banking toward technology and pharmaceuticals with entrants like AstraZeneca, GlaxoSmithKline, Sage Group, Ocado Group, and BAE Systems; these trends paralleled international listings including Alibaba Group, Tencent, and cross-listings tied to European Union policy debates and Brexit negotiations.

Composition and Constituents

Constituents are selected from companies listed on the London Stock Exchange and domiciled in the United Kingdom or Republic of Ireland, with prominent members historically including Shell plc, BP plc, HSBC Holdings, Unilever plc, Diageo plc, AstraZeneca plc, Rio Tinto Group, Glencore plc, and BHP Group. Sector representation spans extractive firms like Anglo American plc, financial services names such as Barclays PLC and Standard Chartered, consumer goods manufacturers including Reckitt Benckiser Group and Imperial Brands, technology-influenced companies like Experian plc, and utilities exemplified by Centrica plc and National Grid. Index membership changes via promotions and relegations interact with corporate events involving mergers and acquisitions by groups like 3i Group and Permira, demergers similar to Shire plc transactions, initial public offerings including Just Eat Takeaway.com listings, and takeovers by firms such as Kraft Foods and AbbVie.

Calculation and Methodology

The index uses a market capitalization weighted formula managed by FTSE Russell employing free-float adjustments and share class rules that consider holdings by institutional investors such as BlackRock, Vanguard Group, State Street Corporation, and sovereign entities like Qatar Investment Authority. Calculation conventions align with practices used by MSCI and involve routine quarterly reviews alongside emergency reviews triggered by corporate events involving Deutsche Bank-style restructurings or Glencore-type capital reorganizations. Trading hours correspond with the London Stock Exchange session and settlement systems including CREST; tick size and quotation conventions reflect rules set by Financial Conduct Authority and clearing arrangements through firms like LCH.Clearnet and Euroclear. Adjustments for dividends, rights issues, and share buybacks follow published methodologies analogous to those used in indices such as the FTSE 250 and FTSE All-Share.

Market Influence and Performance

Movements in the index impact institutional portfolios managed by BlackRock, Legal & General, UBS Group, Citigroup, and Goldman Sachs, and influence derivative products from exchanges like ICE and CME Group as well as ETFs issued by iShares and Vanguard. Historical performance has reflected macro shocks including the 2008 financial crisis, the 2020 COVID-19 pandemic, and policy shifts under cabinets like the Johnson ministry, with sectoral leadership changing between energy, financial services, and healthcare names such as AstraZeneca and GlaxoSmithKline. The index serves as a reference in sovereign analyses by International Monetary Fund, World Bank, and ratings agencies like Moody's, S&P Global Ratings, and Fitch Ratings.

Regulation and Governance

Governance rests with FTSE Russell under the oversight of the London Stock Exchange Group, while regulatory compliance involves agencies including the Financial Conduct Authority and, historically, policies tied to the European Securities and Markets Authority. Corporate governance standards for constituent companies reference codes like the UK Corporate Governance Code and are monitored by institutional investors such as Hermes Investment Management and stewardship bodies like the Investor Forum. Market integrity and transparency intersect with listing rules administered by the London Stock Exchange and enforcement by regulators such as Serious Fraud Office in cases of corporate misconduct.

Criticisms and Limitations

Critiques include concentration risk toward large capitalizations similar to concerns raised about the S&P 500 and FTSE 250, underweighting of small caps seen in debates involving MSCI Small Cap benchmarks, and currency exposure issues highlighted by analysts at Goldman Sachs and Morgan Stanley. Others point to sectoral biases favoring legacy firms such as BP and Shell during periods when growth companies like ARM Holdings or Deliveroo are absent, and to governance challenges when conglomerates or dual-class share structures resemble controversies involving Facebook and Alphabet. Methodological limitations—free-float adjustments, review frequency, and domicile rules—are scrutinized by academic centers like London Business School and policy groups including The Institute of Directors.

Category:Stock market indices