The FTSE 100 at a glance
The Financial Times Stock Exchange (FTSE) 100 Index was launched on January 3, 1984, with an index base of 1,000 points and extrapolated back to 1969.
The index includes companies domiciled in the United Kingdom that are listed on the London Stock Exchange. The index is calculated and managed by the British company FTSE Group.
In contrast to the German DAX, the FTSE 100 is a price index. This means that, for example, dividend payments of the companies in the index are not included in the price of the index.
Weighting of the FTSE 100
The companies in the index are of different sizes and consequently also have different importance for the UK economy. For this reason, the companies are weighted in terms of their market capitalization. This means that the large companies have more influence on the index than the smaller ones. This system is used in this way for all modern indices. Every quarter, the composition of the FTSE 100 is reviewed.
With a share of around 17% each, companies from the financial and consumer staples sectors take the most valuable share in the index. The smallest sectors are real estate and technology. Both have a share of only around 1.3%.
The largest company in the index is the vaccine manufacturer Astrazeneca, with a market capitalization of around 155 billion euros. At the other end of this list is the company Pearson PLC, which is worth only 5.4 billion euros on the stock exchange.
The best-known companies from the FTSE 100
There are some companies in the FTSE 100 which have a global reputation. These include, for example, the company Astrazeneca, which is best known for its COVID-19 vaccine.
The major international banks HSBC, Barclays and Lloyds Banking Group are also known to many people.
Bill Ackman's (Pershing Square Holdings) investment fund, which is included in the FTSE 100, is very well known, at least among investors. It achieved high profits during the financial crisis and the Corona crash.
Other well-known companies in the FTSE 100 are the oil companies BP and Royal Dutch Shell, and the food manufacturer Unilever.
The annual development of the FTSE 100
After the introduction of the UK index in 1984, it increased by an average of 13.76% per year in the first ten years. In the last ten years, however, the index rose by only 1.43% per year. This is very little compared to other indices. The American S&P500 and the global MSCI World achieved annual returns of well over 8%. The main reason for this is the uncertainty caused by the Brexit. The exit from the EU represented a very large economic risk. This was then also reflected in the development of share prices.
What is important for private investors?
If an investor had invested €1,000 in the index at its inception in 1984, they would be worth €7,500 today. This corresponds to an annual return of 6.4%. By comparison, the American S&P500 achieves long-term returns of 10% annually.
The UK has many quality companies. These have performed well in the past and are likely to do so in the future.
However, an investment in an ETF on the entire index should be carefully considered. The long-term consequences of the Brexit are not yet known, but represent a high risk. With an investment in a global index, such as the MSCI World, investors have achieved significantly higher returns with lower risk in the past.
