You've probably heard the news anchors mention "the FTSE is up" while looking vaguely concerned or triumphant. It’s the heartbeat of the City of London. People call it "the Footsie." It sounds cuddly, but it’s basically the heavyweight wrestling ring of the corporate world. If you're looking at the Financial Times Stock Exchange Index, specifically the FTSE 100, you aren't just looking at a list of British shops and factories. You're looking at a global behemoth that happens to reside in London.
Most people get this wrong. They see the index drop and assume the UK is going broke. Or they see it hit an all-time high and wonder why their local high street is full of boarded-up windows. Here’s the reality: the FTSE 100 is an international beast. Around 70% to 80% of the revenue for these companies comes from overseas. When the pound gets weak, the FTSE often goes up. Why? Because those dollars and euros earned abroad suddenly buy more pounds. It's a bit of a paradox, honestly.
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What the Financial Times Stock Exchange Index Actually Tracks
The FTSE Group—a joint venture that started between the Financial Times and the London Stock Exchange—manages a whole family of indices. But the big one is the FTSE 100. This is a market-capitalization weighted index. That’s a fancy way of saying the bigger the company, the more it moves the needle. If Shell or HSBC has a bad day, the whole index feels it. If a smaller company at the bottom of the list doubles in value, it’s barely a blip.
It represents the 100 largest companies listed on the London Stock Exchange (LSE). Every quarter, there’s a "reshuffle." Imagine a primary school game of British Bulldogs, but with billion-pound balance sheets. If a company’s value drops too low, it gets relegated to the FTSE 250. If a rising star grows big enough, it gets promoted. It’s ruthless. This keeps the index "fresh," though some critics argue it leads to a "survivorship bias" where we only see the winners.
The "Old Economy" Problem
If you look at the Nasdaq in the US, it’s all AI, chips, and software. The Financial Times Stock Exchange Index is... different. It’s heavy on "old world" stuff. Think banks, oil giants, mining companies, and tobacco. We’re talking BP, Rio Tinto, Unilever, and British American Tobacco. It’s reliable. It pays dividends—tons of them. But it hasn't historically seen the explosive "to the moon" growth of Silicon Valley tech stocks.
This makes the FTSE a favorite for "value investors." These are the folks like Warren Buffett (though he mostly sticks to the US) who want steady cash flow rather than a rollercoaster ride on the latest app. If you’re retired and living off dividends, the Footsie is your best friend. If you’re a 22-year-old trying to turn $1,000 into a million? Maybe not so much.
Why the FTSE 250 is Often the "Real" UK
If the FTSE 100 is a global traveler, the FTSE 250 is the local shopkeeper. This index tracks the next 250 largest companies. These firms are much more tied to the actual UK economy. When the British consumer is feeling flush, the 250 usually does well. When there's talk of a UK recession, the 250 feels the sting long before the 100 does.
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Investors often use the 250 as a "pure play" on Britain. It’s got more mid-sized builders, retailers, and domestic services. There is a weird tension here. You can have a situation where the FTSE 100 is soaring because the global economy is booming, while the FTSE 250 is tanking because interest rates in the UK are hurting local families. It’s a tale of two indices.
The Weird Relationship With the Pound
This is the part that trips up even seasoned traders. Usually, you’d think a strong currency is a sign of a strong stock market. Not here. Because the Financial Times Stock Exchange Index is so global, a strong British Pound (GBP) actually hurts the earnings of the big players when they convert their foreign profits back into sterling.
I remember watching the markets right after the Brexit vote in 2016. The pound crashed. Everyone panicked. But within a short time, the FTSE 100 started climbing. Why? Because the companies in it were suddenly worth more in "cheap" pounds. It’s a natural hedge. If you're worried about the pound losing value, owning the FTSE 100 is actually a way to protect yourself. Sorta counter-intuitive, right?
How the Index is Calculated
It's not just a simple average. They use a free-float methodology. This means they only count the shares that are actually available for the public to trade. They don't count "locked" shares held by governments or founders.
The formula is basically the sum of the market caps of all 100 companies, divided by a "divisor." This divisor is a secret sauce that gets adjusted for things like stock splits or mergers so the index price doesn't just jump for no reason.
$Index \space Value = \frac{\sum (Price \times Number \space of \space Shares \times Free \space Float \space Factor)}{Divisor}$
It’s a massive calculation happening in real-time, every second of the trading day from 8:00 AM to 4:30 PM London time.
Is the FTSE 100 Dying?
There’s been a lot of doom-and-gloom lately. You’ll see headlines in the Financial Times or The Economist asking if London is losing its luster. Some big companies have moved their listings to New York. ARM, the big UK tech hope, chose the Nasdaq. Why? Because valuations are higher in the US. Investors there are willing to pay more for growth.
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But let’s not write the obituary yet. The FTSE is still the third most widely used index in the world for derivatives. It’s the gateway to European and emerging market exposure. Plus, because it's "cheap" compared to the US, many analysts think it’s a coiled spring. At some point, the value becomes too good to ignore. You get high dividend yields—often 3% to 4% or more—which is way better than you’ll get from most big US indices.
Misconceptions to Clear Up
- It’s not just "British" companies. Companies like Glencore (Swiss) or Antofagasta (Chilean) are in there. They list in London to get access to the deep pools of capital.
- A "point" isn't a pound. When the FTSE goes up 50 points, it doesn't mean your shares went up £50. It’s a relative measure of value based on a starting point of 1,000 back in 1984.
- The "Financial Times" doesn't own it anymore. They sold their stake to the London Stock Exchange Group (LSEG) years ago, though the name stuck. Brand recognition is a powerful thing.
Actionable Steps for Navigating the Index
If you're looking to actually do something with this information, don't just go out and buy random stocks.
Check the Sectors First
Before you put money into a FTSE 100 tracker, look at the commodity prices. Since the index is so heavy on miners and oil, if gold and oil are crashing, the FTSE is going to have a hard time, regardless of how well the rest of the companies are doing.
Understand the Dividend Yield
The Financial Times Stock Exchange Index is a "total return" play. Don't just look at the price chart. If the price is flat for a year but you collected a 4% dividend, you still beat a lot of savings accounts. Use a "Total Return" version of the index chart to see the real growth.
Look at the 250 for Growth
If you actually believe in the UK’s future and want to bet on British ingenuity, the FTSE 250 is usually a better bet than the 100. It’s more volatile, sure, but it has historically outperformed the 100 over long periods because it's full of "scaled-up" companies rather than stagnant giants.
Diversification is Key
Never let the FTSE be your only investment. Because it lacks a heavy tech presence, you miss out on the biggest sector of the 21st century. Pair a FTSE tracker with a Nasdaq or S&P 500 fund. That way, you get the steady dividends from London and the "moonshots" from the US.
Watch the Currency
If you are an international investor, remember you are making two bets: one on the companies and one on the British Pound. If the FTSE goes up 5% but the Pound drops 10% against your home currency, you’ve actually lost money.
The FTSE 100 is a survivor. It’s weathered the 1987 crash, the dot-com bubble, the 2008 financial crisis, and Brexit. It might look "boring" compared to crypto or AI stocks, but in the world of finance, boring is often where the real wealth is built over decades. It's a collection of the world's most essential businesses—the ones that provide the energy we use, the banks we store money in, and the consumer goods we buy every day. That’s not going away anytime soon.
Next Steps for Investors:
- Compare Expense Ratios: If buying an Index Fund (ETF) that tracks the FTSE, ensure the management fee is below 0.1%. There is no reason to pay more for a passive product.
- Review Quarterly Rebalances: Keep an eye on the March, June, September, and December reshuffles. Companies entering the FTSE 100 often see a temporary price bump as "tracker funds" are forced to buy their shares.
- Analyze Dividend Cover: Check if the big hitters like Shell or BP are earning enough to actually pay those dividends. A high yield is a "value trap" if the company has to borrow money to pay it.