FTSE - What is the FTSE and Why it Matters

It's Not Just a Flirtatious Gesture, It's a Stock Index!

The FTSE Group (informally called the "footsie") is a joint venture between the Financial Times of London and the London Stock Exchange. The acronym FTSE stands for Financial Times and Stock Exchange and the group's indices comprise the most highly capitalized companies in the United Kingdom listed on the London Stock Exchange.

The FTSE 100 was first created in January of 1984 with a base level of 1,000 and has since jumped to a level of over 7,000, as of March 2018. After rebounded from the lows reached during the European sovereign debt crisis of late 2010 and early 2011, the index finally surpassed the prior all-time high of 6,950 made in December of 1999 during the height of the Internet bubble.

Many international investors look to the FTSE indexes, and the FTSE 100 in particular, as a proxy for the wider UK market, similar to the way that U.S. investors look at the Dow Jones or S&P 500 indexes.

FTSE Indices: From 100 to 350 and Beyond

The most popular index maintained by the FTSE Group is the FTSE 100, which consists of the 100 most highly capitalized companies in the UK listed on the LSE. In addition, the FTSE Group maintains other indices ranging from the FTSE All-Share to so-called ethical indices like the FTSE4Good Global index that focuses on corporate responsibility.

FTSE Group's most popular indices include the FTSE 100, FTSE 250, FTSE 350 and the FTSE All-Share. These indices can be further broken down into high yield, low yield and ex-IT indices that are computed at the end of the day. For example, the FTSE Group's ethical indices, collectively known as FTSE4Good, track global, Europe, UK, USA and other markets.

Some commonly recognizable companies trading on the FTSE 100 include:

  • BP plc (NYSE: BP)
  • BHP Billiton plc (NYSE: BBL)
  • Randgold Resources Ltd. (NASDAQ: GOLD)
  • Rio Tinto plc (NYSE: RIO)
  • GlaxoSmithKline plc (NYSE: GSK)

A complete and updated list of indices and their prices can be found on the FTSE Group's website.

How to Invest in the FTSE 100 & Other Indices

There are many different ways for international investors to gain exposure to the FTSE 100 and FTSE Group's other indices. Exchange-traded funds (ETFs) offer an easy way for investors to gain exposure, but none of the FTSE 100 ETFs trade on U.S. exchanges. American Depository Receipts (ADRs) are also available for some individual components of these indices.

Some common FTSE Group ETFs include:

  • iShares FTSE 100 (LSE: ISF)
  • HSBC FTSE 100 ETF (EPA: UKX)
  • DBX FTSE 100 (LSE: XUKX)
  • Lyxor FTSE 100 ETF
  • UBS FTSE 100 ETF

Investors should always be cognizant of expense ratios when investing in international ETFs since they can eat into returns over the long run. It's also a good idea to look at the fund's underlying portfolio for industry or sector concentration risks. For instance, the UK has a high concentration of financial services companies compared to many other countries.

In addition to the five ADRs listed above, other popular ADRs include:

  • Vodafone Group (NASDAQ: VOD)
  • Barclays plc (NYSE: BCS)
  • Unilever plc (NYSE: UL)
  • HSBC Holdings (NYSE: HBC)
  • ARM Holdings (NASDAQ: ARMH)

Investors should keep in mind that ADRs may not have as much liquidity as the LSE-traded version of the stock. In addition, it's important to remember that these companies may not report to the U.S. Securities and Exchange Commission (SEC), which can make it more difficult to conduct due diligence.

Alternatives to the FTSE Group's Indices

International investors seeking exposure to the United Kingdom have other options, too. Aside from the FTSE Group's indices, there are several other ETFs that offer broad exposure to the region. The indices behind these ETFs include MSCI, BLDRS, STOXX and HOLDRS among others and each offers a unique take on portfolio allocation.

Some common ETFs focused on the UK include:

  • MSCI United Kingdom Index Fund (NYSE: EWU)
  • BLDRS Europe 100 ADR Index Fund (NYSE: ADRU)
  • STOXX European Select Dividend Index Fund (NYSE: FDD)
  • SPDR DJ STOXX 50 ETF (NYSE: FEU)
  • BLDRS Developed Markets 100 ADR Index (NYSE: ADRD)

Investors should keep in mind that some of these ETFs have broader exposure than just the UK. For example, they may have meaningful exposure to European stocks, which could introduce certain risks.