The FTSE Indexes, compiled by the FTSE Group, are a set of share indexes widely used by investors and portfolio managers. This comprehensive article will delve into the history, types, key events, detailed explanations, mathematical models, and the importance of FTSE Indexes in the financial markets.
Historical Context
The FTSE Group, an independent company owned jointly by the Financial Times and the London Stock Exchange (LSE), began compiling these indexes to provide transparent and accurate benchmarks for financial markets. The initiative aimed to offer a clearer picture of market trends and investment opportunities.
Types of FTSE Indexes
FTSE All-Share Index
This index includes over 600 shares and fixed-interest stocks, covering over 98% of the market and 90% of turnover by value.
FT 30 (Financial Times Ordinary Share Index)
The FT 30 tracks 30 leading industrial and commercial shares, chosen to represent British industry. It started in 1935 and has been mostly superseded by more comprehensive indexes.
FTSE 100 Index (“Footsie”)
Introduced in 1984 with a base of 1000, it tracks the 100 largest UK companies on the LSE and is reviewed quarterly. It is a key indicator of market activity.
FTSE 250 Index
Includes companies capitalized between £150 million and £1 billion.
FTSE 350 Index
Aggregates the FTSE 100 and FTSE 250 indexes, providing a broader market perspective.
FTSE Small Cap Index
Covers over 270 companies capitalized between £20 million and £150 million.
FTSE Fledgling Index
For companies too small to be included in the Small Cap Index but meet other inclusion criteria.
FTSE AIM Index Series
Covers the Alternative Investment Market (AIM), which includes mainly smaller companies.
FTSE Euro-Top 100 Index and FTSE Eurofirst Index Series
Measures performance of companies in the European Union and eurozone.
FTSE All-World Index Series
Launched in 1987, it covers over 2800 share prices from 49 countries, representing developed, emerging, and advanced emerging economies.
Key Events
- 1935: Launch of FT 30.
- 1984: Introduction of FTSE 100.
- 1987: Launch of FTSE All-World Index Series.
- 1992: Expansion to include FTSE 250 and FTSE 350.
- 2003: Introduction of Eurofirst Index series in conjunction with Euronext NV.
Mathematical Models
The FTSE Indexes are based on weighted arithmetic averages, with specific formulas for different types of indexes. For example, the FTSE 100 is calculated minute-by-minute using the formula:
Where:
- \( P_i \) = Price of component stock \( i \)
- \( Q_i \) = Quantity of component stock \( i \)
- \( D \) = Divisor, adjusted for stock splits, dividends, and other corporate actions.
Charts and Diagrams
graph TD;
A[FTSE Indexes] --> B[FTSE All-Share Index]
A --> C[FT 30]
A --> D[FTSE 100 Index]
A --> E[FTSE 250 Index]
A --> F[FTSE 350 Index]
A --> G[FTSE Small Cap Index]
A --> H[FTSE Fledgling Index]
A --> I[FTSE AIM Index Series]
A --> J[FTSE Euro-Top 100 Index]
A --> K[FTSE Eurofirst Index Series]
A --> L[FTSE All-World Index Series]
Importance and Applicability
FTSE Indexes are vital for:
- Benchmarking Performance: Investors and portfolio managers use them to gauge the performance of their investments.
- Market Trends: Providing insights into market trends and economic health.
- Investment Decisions: Aiding in making informed investment decisions.
Examples and Considerations
- Investment Portfolios: Many mutual funds and ETFs are benchmarked against FTSE indexes.
- Economic Health: Sudden changes in index levels can indicate broader economic issues.
Related Terms
- Stock Index: A measurement of a section of the stock market.
- Benchmark: A standard or point of reference against which things may be compared.
- Equity: Ownership interest in a corporation in the form of common stock or preferred stock.
Comparisons
- FTSE 100 vs. S&P 500: The FTSE 100 represents UK companies, whereas the S&P 500 represents US companies.
- FTSE All-World Index vs. MSCI World Index: Both track global equities, but they use different methodologies.
Interesting Facts
- The FTSE 100 is often referred to as “Footsie.”
- It provides a real-time view of market activity with updates every 15 seconds.
Inspirational Stories
- Rise of Technology Companies: The inclusion and performance of technology companies in the FTSE 100 over the years have reflected the rise of the tech industry.
Famous Quotes
- “Markets go up and markets go down, but they always recover over time.” – David L. Steward.
Proverbs and Clichés
- “A rising tide lifts all boats.”
- “The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett.
Jargon and Slang
- Blue Chip: Refers to high-quality, widely accepted stocks.
- Market Cap: Short for market capitalization, it’s the total market value of a company’s outstanding shares.
FAQs
What is the FTSE 100?
How often are FTSE indexes updated?
What is the importance of the FTSE All-World Index?
References
- FTSE Group. (n.d.). FTSE Russell
- Financial Times. (n.d.). Historical performance data of FTSE indexes.
Summary
The FTSE Indexes serve as crucial tools for investors and financial professionals by offering benchmarks and insights into market performance. Their diverse range of indexes caters to different market segments and geographical regions, providing comprehensive coverage of the financial landscape. By understanding FTSE Indexes, investors can make more informed decisions and better navigate the complexities of the stock market.
