FTSE-100

The FTSE-100 reflects the state of the UK stock market. It includes the 100 largest listed companies, according to market capitalisation, on the London Stock Exchange. While inclusion in the FTSE-100 enhances the image of a company, a demotion does not necessarily imply a fall from grace. The market capitalisation of company could fall if an entire sector is downgraded. The technology sector, for instance, was downgraded after the dotcom crash at the turn of the century.

The FTSE-100 was first compiled on January 3rd 1984 with a base value of 1,000. It closed at 5,182.10 on October 25th 2005. The FTSE-100 celebrated its 20th anniversary in January 2004. The total market capitalisation of the FTSE-100 rose from £100.15 billion on January 3rd 1984 to £1,110.84 billion on January 5th 2004.

Changing Trends in the FTSE-100

The changes in the top five companies in the FTSE-100 over the two decades reflect the changes in the UK corporate sector. British Petroleum continued to remain at the top of the list in 2004 though its name was changed to BP. The remaining four companies in the top five such as Shell Transport & Trading, General Electric Co. (not related to the US-based General Electric), Imperial Chemical Industries and Marks & Spencer gave away to new ones such as Vodafone Group, HSBC, GlaxoSmithKline and the Royal Bank of Scotland Group. The new inclusions reflect the growing prominence of banking, telecommunications and pharmaceuticals in the UK corporate sector.

The FTSE-100 is reviewed four times a year in March, June, September and December to ensure that the index reflects the market. The review is carried out by a committee comprising senior industry executives. Till year-to-date 2005, five stocks were promoted from the FTSE-250 to the FTSE-100 and an equal number relegated due to a change in market capitalisation. The FTSE-100 also reflects changes to the constituent companies arising out of new issues and other developments.

Who compiles the FTSE-100?

The FTSE-100 is compiled by the FTSE International, a joint venture of the London Stock Exchange (LSE) and The Financial Times (FT), a subsidiary of Pearson. LSE holds 50 per cent of the FTSE International's equity while FT owns the other half.

The indices published by the FTSE International can be classified into four categories: global equity indices; UK indices; alternative investment indices; and other indices. While global equity indices include the likes of the FTSE all-world Index and the FTSE Multinationals Index, the UK Indices include the likes of the FTSE-100 and the FTSE-250. The alternative investment indices, meanwhile, include the FTSE Hedge and the FTSE UK Gilts Indices among others. The other indices category includes a host of indices such as the FTSE GWA Index series and the FTSE/Hang Seng Index Series.

The indices compiled by FTSE International can also be classified on the basis of utility into benchmark indices and tradable indices. The benchmark indices, comprising most stocks in the market, reflect the performance of a market while tradable indices discharge the same function through a fewer number of stocks. The FTSE All-Share Index, a benchmark index, includes stocks from the FTSE-100, the FTSE-250 and the FTSE Small Cap Indices. The FTSE-100, on the other hand, includes 100 stocks. While FTSE All-Share accounts for 98-99 per cent of the total UK market capitalisation, the FTSE-100 accounts for about 80 per cent.

The FTSE International makes money through two streams: licenses and subscriptions. Financial products such as an index fund tracking a specific FTSE index need to pay a license fee to the FTSE International. Similarly, the FTSE International charges a subscription fee for providing indices data.

Now the FTSE-100 is the flagship index of the FTSE International. It is not only regarded as true reflection of the UK stock market, but used as a base for several financial products. Indeed the FTSE-100 has come a long way in a little over twenty years.