The Financial Times Stock Exchange referred to as the FTSE 100 is a market-capitalisation weighted index launched in January 1984 with a base value of 100 of UK-listed blue chip companies. The index is part of the FTSE UK Series and is designed to measure the performance of the 100 largest companies traded on the London Stock Exchange that pass screening for size and liquidity. FTSE 100 constituents are all traded on the London Stock Exchange.
- The index is designed for the creation of index tracking funds, derivatives and as a performance benchmark.
- Stocks are selected and weighted to ensure that the index is investable.
- Stocks are screened for liquidity to ensure that the index is tradable.
- Freely available index rules are overseen by an independent committee of leading market professionals.
- The index is calculated based on price and total return methodologies, both real time intra-second and end of day.
- Industry Classification Benchmark Index constituents are categorized in accordance with the Industry Classification Benchmark (ICB), the global standard for industry sector analysis.
The index is calculated using the Weighted Average Market Capitalization methodology where the price multiplied by the free float gives the market capitalization of its constituents. The base value of the index is 100 as on 30th December 1983. The weightage of each company is arrived at by dividing the market capitalization of each company with the total market capitalization of all the 100 companies. The larger the market weightage of the company the larger is the impact due to 1% change in its price on the index.
The index is reviewed on a quarterly basis in the months of March, June, September and December.
Oil and Gas constitute 16.85% followed by Banks at 13.24%, Healthcare at 9.13%, Basic Resources at 8.61%, Personal and Household Goods at 7.98%, Industrial Goods and Services at 7.32%, Insurance at 5.59%, Telecommunications at 5.34%, Utilities at 4.3%, Retail at 3.72%, Media at 3.14%, Travel and Leisure at 3.08%, Real Estate and Technology at 1.12% each, Financial Services at 0.8%, Construction and materials at 0.73%, Chemicals at 0.4% and Automobiles and Parts at 0.38% for the sector allocation in the index.
The FTSE has given a return of 9.55% on a year on year basis and 1.6% on a month on month basis. The index reached an all-time high of 6950.6 on 30th December 1999. The index has a Price to Earnings ratio of 13.2 in the current scenario. The HSBC Holdings company has the highest weightage of 6.9% in the FTSE index followed by British Petroleum (BP) with a weightage of 5.35%, Royal Dutch Shell with 5.11%, Glaxosmithkline with 4.67% and British American Tobacco at 3.8% while others have less than 3.8% weightage each in the index.
Table 1. FTSE 100 Constituents