FTSE100 Market Cap – How do companies get into the FTSE indexes?

The FTSE Group which is owned and operated by the London Stock Exchange first came out of a joint venture with the Financial Times. As a result, the acronym “FTSE” has remained to this day even though the Financial Times doesn’t have much to do with it. The FTSE 100 is made up of 100 qualifying companies from the United Kingdom. The FTSE 100 market capitalization will reflect the market value. A lot of these large companies are globally focused, so it can’t be used as a tool to ascertain the health of the U.K. economy.

What is Market Capitalization?

Market capitalization or market cap is basically the market value of the share capital issued by a company. This means that the value is calculated multiplying the number of shares by the current price of those shares in the stock market.

So the FTSE 100 market cap would be the value of the companies that are listed. The FTSE 100 market cap will have companies ranked as follows:

• Large-cap
• Mid-cap
• Small-cap

This will depend on the market capitalization value of each company although exact criteria for classification will depend on the market. The FTSE market cap represents more than 80% of the entire market capitalization of the London Stock Exchange.

There are several requirements set out by the FTSE Group that must be met by companies. These include having a full listing with a Sterling price on the London Stock Exchange. It will also need to have a Euro denominated price for the Stock Exchange Electronic Trading Service.

Further, companies will also need to meet certain criteria in relation to nationality, liquidity, and free float.

What Does it Mean to be Weighted?

The FTSE 100 is a market capitalization weighted index. This means that the FTSE 100 market cap weight is calculated by market value as measured by capitalization.

But it’s not just the FTSE 100, the majority of equity indexes these days are cap-weighted. For example, the S&P 500 is a market capitalization weighted index. In a cap-weighted index, movements in the value of larger securities will change the overall trajectory a lot more than movements made by smaller companies on the index.

Further, by understanding how the index is weighted, you can also make better predictions as to how it will fair in the future.

History

The index was started on 3rd January 1984, with initially top 100 companies having an aggregate market value of 160B euros. The initial market cap almost covered 81% of the valuation when compared to the broader LSE. The index was started with a level of 1000, which has changed many times and encountered takeovers, mergers, and delisting. The index changes its list every three months to provide accurate results.

How the FTSE 100 market cap is calculated

The FTSE Group uses a special formula to calculate the index, and it includes the following components:

• Index level
• Stock price
• Quantity of shares
• Free float factor
• Divisor of index

In the index, share prices are weighed by its market capitalization in order to be fair with the smaller companies. This would mean that larger companies should make more of a difference to the index than smaller companies.

The free float adjustment factor represents the percentage of all the shares that are readily available for trading.

The price of one share of each company is multiplied by their total number, then the product is multiplied by the Free-float factor and divided by the Index divisor which is a dynamic indicator calculated as the ratio of the index capitalization to its value compared to the reporting period. The free float is the number of shares that are in free trade at the time of calculation within the stock exchange; the price of the stock is the price of a share of a company; the number of shares reflects the total number of the company’s shares.

FTSE 100 companies by market cap

The list of companies included in the index is dynamic. However, there have not been many changes in it over the past few decades. Although the index is called FTSE 100 it uses assets of 101 companies, since Royal Dutch Shell, which is the largest oil company in Europe, uses 2 asset classes at once.

The index is diversified by industry and has no obvious bias in favor of a particular industry. However, a significant number of FTSE 100 list by market cap is represented by 11 mining companies, 6 oil and gas companies, and 5 banking companies.

The popularity of this index is due to the high requirements for the companies that include it. According to the data from the official website, it may include companies that meet the following requirements:

• the companies are listed on the London Stock Exchange;
• the companies have the exact value of the shares, which is reflected in either euros or pounds;
• the main financial and administrative information of the company is public;
• shares are highly liquid and in free float.

Among the companies whose securities are included in the index, today there are such well-known international corporations as Barclays, Burberry, Eurasian Natural Resources Corporation, Lloyds Banking Group, Unilever, Rolls-Royce, etc.

How does the economic environment reflect

In the FTSE definition, it was mentioned that the assets of all companies included in the index make up the majority of the financial turnover on the London Stock Exchange. It also actually reflects the current economic situation in general throughout the country. For example, with a sharp decline in exports, it decreases, with an increase in the capitalization of companies and an increase in their profitability, FTSE 100 market cap also increases. Overall, one of the key features of the FTSE 100 is that it rarely has sharp ups and downs.

Moreover, the FTSE 100 has not experienced deep drawdowns without subsequent growth over the entire period of its existence. Therefore, as an investment instrument, it is a very stable asset, which is owned by almost every major investor.

Trading the FTSE 100 Index

The FTSE Index is the most important index for the global and European economy. Trades are held daily from 8:00 to 16:29 GMT (closing deals) and the closing of trades itself takes place at 16:35. All daily data on the FTSE 100 are published in the Financial Times.

Investing in the FTSE 100

Experts recommend using the FTSE 100 for long-term investments designed not to maximize income, but to ensure minimum risk of capital loss. After all, a situation when 100 of the largest UK companies at once incur huge losses is unlikely. It is also important to note that the FTSE 100 market cap has increased by about 750% since the index was created. Therefore, it is a great option to save your funds as an alternative to bank deposits.

FTSE 100 trading specifics and tools to invest

The tools with which you can invest in the FTSE 100 index, include the following options:

• ETFs;
• CFDs;

In order to trade on the FTSE 100 index, it is not necessary to look over each company included in the FTSE 100 list by market cap, and no one does this except the FTSE Group.

You need to monitor the British economy, the movement of the British pound GBP price, the political environment. Such news as higher taxes, lower exports, an imbalance between supply and demand might lead to a deterioration in the business environment and is a negative factor.

In the economic calendar, it is important to pay attention to such British indicators as production volumes, indices of industry, exports and imports, and everything related to the business environment.

You can go to the official index website for the latest news and analytics. In addition, it is worth looking at the important economic events of the major economies of the world, since important economic measures can affect the British economy.

The FTSE 100 index is currently among the topmost liquid indices, so it is quite simple to analyze it due to a large amount of news and analytical materials.

What affects the FTSE 100 rate

The FTSE 100 rate is primarily influenced by factors related to the economy of Britain and the EU: the pound rate, interest rates of the Central Bank; reports on GDP, production indices, inflation; as well as the political situation, changes in tax legislation, export volumes, etc., bad data usually negatively affect the FTSE and lead to its fall and vice versa. A lot of important news is published directly on the official website of the index.

A lot depends on the specific composition of the index at the current moment, for example, the more oil companies there are, the more the index is exposed to events affecting the hydrocarbon market, etc. Many even completely English companies still receive the largest share of profits from exports to other countries, so their revenues are usually indicated not in the local currency, but US dollars.

List of FTSE 100 Companies

Obviously enough, the index must reflect the 100 companies that are currently on the London Stock Exchange or else we would still have older companies in it. The changes occur once every quarter but in the event that a company in the FTSE is to experience a takeover or a merger it will be changed accordingly.

The review process of the index is fairly simple – all companies listed on the London Stock Exchange and eligible for the FTSE UK indices are rated according to their size or market capitalization.

A committee comprised of individual market experts have a meeting in the months of March, June, September and December to decide which companies should be allowed in the FTSE 100 index. Simply put, if a company is in the FTSE 250 and manages to get into the top 90 companies then it can enter the FTSE 100 index. However, if an FTSE 100 company falls to the 111th position or below the rankings it will go too the FTSE 250.

Components companies must meet a number of requirements that is set by the FTSE group. This includes a full list on the London Stock Exchange with a British sterling or Euro denominated price in the electronic stock exchange service another requirement, is to meet certain standards regarding nationality, free float and liquidity of the company.

Conclusion

In total, the FTSE 100 is a key index of the London Stock Exchange, which is calculated from the value of the hundred largest UK companies in terms of capitalization. The index comprehensively reflects the current situation of the whole UK economy and is widely used in conservative investment policy, especially for long-term investments. FTSE 100 has a key advantage: it is influenced by both the industrial and manufacturing national sectors. And therefore, the likelihood of drawdowns is much lower than for assets focused exclusively on trading or only on the manufacturing sector, and this makes FTSE 100 a relatively stable place to invest. To start investing in the FTSE 100 companies by market cap, it is recommended to work with a legit and reliable financial service provider, which offers a large list of assets and decent trading conditions.

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