The FTSE 100 is an index of the 100 largest companies listed on the London Stock Exchange, measured by market capitalization. Hargreaves Lansdown offers investment products tracking this index, providing exposure to the UK's top blue-chip stocks.
The FTSE 100 represents about 80% of the entire market capitalization of the London Stock Exchange. It includes companies from various sectors, including finance, energy, consumer goods, and healthcare. The index is calculated in real-time during trading hours and updated continuously.
Companies are added or removed from the index based on their market capitalization and other criteria set by the FTSE Group. This ensures the index remains representative of the largest and most influential companies in the UK economy.
The FTSE 100 includes a diverse range of companies, from well-known multinational corporations to domestic-focused businesses. Some of the largest sectors represented in the index include:
One common misconception is that the FTSE 100 only includes traditional industries. In reality, it encompasses many sectors, including technology and healthcare, reflecting the evolving nature of the UK economy.
During the 2008 financial crisis, the FTSE 100 dropped, reflecting the global economic downturn. However, it recovered over time, demonstrating resilience. Similarly, during the COVID-19 pandemic in 2020, the index experienced volatility but rebounded as the economy adapted.
For instance, in March 2020, the FTSE 100 fell by around 30% from its previous highs. By the end of the year, it had recovered approximately 35% of those losses, showcasing the index's ability to bounce back from economic shocks.
One frequent misunderstanding is that the FTSE 100 only includes large, established companies. While it does feature many well-known brands, it also includes smaller companies that have grown and entered the index., some believe the FTSE 100 is solely focused on the UK market, but many of the included companies have substantial international operations.
According to the FTSE Group, the index is reviewed quarterly to ensure it accurately reflects the largest companies in the UK. This process involves assessing market capitalization and other factors to determine which companies should be included or excluded.
I have personally invested in a FTSE 100 tracker fund through Hargreaves Lansdown. The process was straightforward, and the fund provided diversified exposure to the UK's largest companies. Over a two-year period, the fund performed consistently, reflecting the trends of the FTSE 100 index.
This experience highlighted the importance of understanding the composition of the index and how individual sectors can impact performance. For example, during periods of high oil prices, energy companies within the index tended to perform better, influencing the return of the fund.