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We regularly see and hear references to the "Footsie" but what is it (no, it not like a ‘Onesie' with feet, nor a game resembling elements of football) and where did it come from?
Launched on 3 January 1984 as a join initiative between The Financial Times and the London Stock Exchange (hence its initials), the FTSE 100 index was made up of the 100 most valuable companies quoted on the London Stock Exchange and was intended to show the composition of British industry and track the state of the UK economy, its economic activity and value. It had a starting base level of 1,000. The value quoted for the FTSE 100 is measured against the original base level, thus a FTSE of 5,650 shows the development since 1984 and allows a regular referencing of movement in value. Movement is expressed as up or down by a certain number of points. The highest level achieved by the FTSE 1000 was 6,950.6 on 30 December 1999, but it fell rapidly and significantly during 2009. Today it is up once more, at 6,725.82 at the time of writing. The FTSE covers approximately 81% of the market capitalisation of all UK quoted companies.
Inclusion in the FTSE 100 is not automatic - the index is maintained by the FTSE Group, a subsidiary of the London Stock Exchange and a committee of the London Stock Exchange determines which companies are included based on their market capitalisation at the end of each quarter provided that they fulfil certain other criteria such as liquidity. Recognising there is some volatility on market capitalisation, a company would not move into the FTSE 100 until its market value actually placed it within the top 90 companies; conversely a company would not immediately drop out of the list - this is intended to avoid too much change in the index listings.
There is no restriction on type of company which can be included. When originally established in 1984, the index reflected the landscape of British industry with a good spread of manufacturing and financial services, retail and energy companies, plus the technology companies which surged into existence in the 1980s. But a change in the British industrial landscape has been reflected, also in a change in the composition of the index. A decline in the importance and influence of the manufacturing sector has been replaced by an increase in the prevalence of financial services, healthcare providers and consumer goods retailers in the index.
Only 30 of the companies included in the original 1984 index remain in the FTSE 100 today. ICI, one of the largest players, was broken up and sold off; a similar fate befell Courtaulds. Other previously well-known names have disappeared for a variety of financial, management or organisational reasons. More recently the number of Banks included in the FTSE 100 has fallen, along with mining and mineral companies. But their places have been filled by newcomers capitalising on new technology and innovations such as Vodaphone and BskyB, and the merger of companies means that even in banking circles the big players like HSBC and Lloyds Banking Group remain included. Some names remain consistent, with British American Tobacco (BAT) and SmithKline Beecham (now of course GlaxoSmithKlein) both retaining their inclusion in the top quartile. Consequently the current FTSE 100 may be considered to be less cyclical and more stable than in earlier times.
Sadly, I can't tell you what the FTSE index will be next year or whether FTSE 100 companies are the ones in which to invest as that would constitute financial advice, but at least now you know the origins of that much referenced index which may prove useful for the odd Pub Quiz or Trivial Pursuits game.
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