According to the United States Securities and Exchange Commission (SEC), a stock market index "tracks the performance of a specific basket of stocks considered to represent a particular market or sector." A stock index, or "indices" in the plural form, offer traders and investors a means of engaging the shares market from a broad perspective. One of the world's leading stock indices is the FTSE 100.
In less formal terms, an equity or stock market index is a statistical representation of a collection of stocks' aggregate value. It is used as a benchmark for equities market performance. Shares indices exist in every market, including the European, American and Asian theatres.
Below are five of the world's most prominent stock indices:
* Dow Jones Industrial Average (DJIA): The Dow Jones is the world's most famous stock market index. A Wall Street institution, the DJIA features the 30 largest companies listed on the New York Stock Exchange (NYSE) and NASDAQ.
* NASDAQ Composite: The NASDAQ Composite index is composed of cutting-edge technology and growth-oriented U.S. stocks. The NASDAQ is renowned for its explosive growth and volatility.
* Nikkei 225: The Nikkei 225 is the leading Japanese stock index. It is made up of 225 of the top stocks listed for trade on the Tokyo Stock Exchange (TSE).
* CAC 40: The Cotattion Assistee en Continu (CAC) 40 is the prominent index for the French stock market. The CAC 40 consists of the top 40 companies available for public trade on the Paris Bourse.
* DAX 40: The DAX 40 is an equities index that consists of the top 40 companies listed on the Frankfurt Stock Exchange (FSE).
The five equities indices listed above represent only a small portion of the global stock index vector. In fact, a vast array of such offerings exists, targeting everything from smallcap stocks to exotic markets. Products such as the Russell 2000 and China A50 illustrate the diversity of stock market indices.
A financial peer of these global indices, the FTSE 100 is viewed as being a leading benchmark of U.K. stock market performance. Read on to learn more about the FTSE, its history and vital underpinnings.
What Is The FTSE 100?
The Financial Times Stock Exchange (FTSE) 100 Index (also known as "footsie") is a market-capitalisation weighted index of the top-performing companies that list on the London Stock Exchange.
The FTSE 100 is managed by the FTSE Russell Group and is one of a family of equities index products. Other offerings from FTSE Russell include the FTSE All-Shares Index, FTSE 250 Index and FTSE 350 Index. It is listed for trade under the ticker symbol "UKX" and is typically denominated in the British pound sterling (GBP) or United States dollar (USD) currencies.
The FTSE is a large cap index made up of 100 blue-chip companies that represent many sectors. Leading industries include oil & gas, chemicals, construction, as well as food and beverage. Listed for trade by the London Stock Exchange Group (LSE), the FTSE 100 is used in portfolio diversification, ETFs and as the underlying asset for various derivatives and contract-for-difference products.
The FTSE 100 Index: Form & Function
The FTSE 100 Index was launched in 1984 and intended to be a tradeable index of the elite 100 corporations in the United Kingdom. Initially, it was designed to be a representation of U.K. "blue chip" stocks. Subsequently, the FTSE 100 Index became a cornerstone of the LSE's launch of an innovative equities derivatives marketplace.
While in development, the FTSE 100 was intended to be a more tradeable version of the FTSE All-Share Index. Similar to the All-Shares Index, the FTSE 100 was a market cap weighted average, but it was to be a current representation of U.K. stock market performance. Upon launch, index values were updated every 60 seconds using the LSE's "TOPIC" information system. By 1997, the index was being updated continuously in real-time.
The reduced latency quickly made the FTSE 100 Index a go-to product for traders, institutional investors, and the financial media. News outlets like Reuters and Bloomberg began to view the index as a sleek performance metric facing U.K. companies. Traders and investors saw vast opportunities in the FTSE 100 and a way to engage elite European stocks.
As a weighted market cap index, each company and sector plays a different role in the FTSE's valuation model. Not all companies and sectors are equal, thus the index reflects current economic, business and industrial trends.
From a sectoral standpoint, the FTSE 100 represents a diverse economic environment. The following are the top six sectors and weights:
- Consumer Staples (17.91%)
- Financials (17.82%)
- Materials (13.39%)
- Industrials (12.16%)
- Health Care (11.73%)
- Energy (9.48%)
As a disclaimer, sector weights are subject to change as financial conditions in the U.K. evolve. External factors may enhance or detract from economic growth, which can impact sectoral performance.
Bank of England (BoE) or U.S. Federal Reserve (Fed) rate hikes, oil prices, or geopolitical angst such as the Russia-Ukraine War (2022) are examples of elements capable of swaying FTSE sectoral weights. For instance, sanctions stemming from the Russia-Ukraine War prompted two Russian mining companies to be removed from the FTSE 100 in March 2022.
As in name, the FTSE 100 consists of 100 top U.K. companies from the leading sectors. Below are some of the more notable constituents of the FTSE 100 and their weights:
- British Petroleum (3.22%)
- Astrazeneca (6.72%)
- Glencore (2.48%)
- Kingfisher (0.36%)
- Taylor Wimpey (0.32%)
- Ashtead Group (1.33%)
- BHP Group Plc (2.29%)
- Diageo (4.63%)
As with all securities, values and pricing are subject to change. If these companies, or any FTSE 100 constituents experience a significant appreciation or depreciation, index weights will reflect their relative market capitalisation.
FTSE 100 Performance
Since its inception in the early 1980s, the FTSE 100 has experienced a collection of unique ups and downs. Nonetheless, the index has shown resilience throughout its nearly four decades in existence.
Regardless of current events or economic cycle, the FTSE 100 has generated positive returns since inception. Over the past three decades, it has grown multifold from valuations near 2,000 to more than 7,000.
From 1987's Black Monday to the post-COVID panic bull market of 2021, there have been many notable events:
- Referred to as the worst day in UK stock market history, 19 October 1987 brought a 10.8% plunge to the FTSE 100.
- Amid the UK Brexit Referendum vote chaos, the FTSE showed stability and closed 0.36% higher on 21 June 2016.
- Following the 2020 onset of COVID-19, the FTSE posted a robust 14.3% annual gain for 2021.
As of this writing (April 2022), the FTSE 100 has returned 0.22% ytd. The modest performance is related to several key market drivers. Hawkish BoE monetary policy, global inflation and the Russia-Ukraine war are three of the most prominent. Although these underpinnings aren't permanent, they do illustrate both the sensitivity and resilience local to the FTSE 100 index.
Launched in 1984, the FTSE 100 Index is a leading barometer of economic performance in the United Kingdom. It is weighted according to market cap and comprises the top 100 UK companies listed on the London Stock Exchange (LSE). A few of the most prominent constituents are Astrazeneca, British Petroleum and Diageo.
The FTSE 100 may be found under the ticker symbol UKX. It serves as the underlying asset for many ETFs and CFDs. Traders and investors alike view the index as being a key metric regarding U.K. economic performance. As with all financial instruments, past performance is not indicative of future results.
FXCM Research Team
FXCM Research Team consists of a number of FXCM's Market and Product Specialists.
Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.
Retrieved 22 Apr 2022 https://www.sec.gov/fast-answers/answersindiceshtm.html
Retrieved 22 Apr 2022 https://fred.stlouisfed.org/graph/
Retrieved 22 Apr 2022 https://www.moneycontrol.com/live-index/cac
Retrieved 22 Apr 2022 https://siblisresearch.com/data/ftse-100-sector-weights/
Retrieved 22 Apr 2022 https://www.ftserussell.com/analytics/factsheets/home/constituentsweights
Retrieved 22 Apr 2022 https://www.londonstockexchange.com/indices/ftse-100
Retrieved 22 Apr 2022 https://www.bbc.com/news/business-36584702
Retrieved 22 Apr 2022 https://www.google.com/finance/quote/UKX:INDEXFTSE