Examining the Structure and Sector Coverage of the FTSE 100 Index

 Highlights

• Tracks performance of leading blue-chip companies on the London Stock Exchange.

• Comprises diverse sectors including energy, finance, and healthcare.

• Reflects economic activity through widely traded and capitalised firms.

The FTSE 100 index is composed of companies listed on the London Stock Exchange, primarily classified as large-cap equities. These firms operate across multiple industries, including finance, energy, healthcare, consumer goods, and industrial services. The composition of the FTSE 100 provides a broad overview of business performance within the UK economy and reflects the aggregated movement of these sectors in the stock market.

Sector Breakdown

Within the FTSE 100, financial services hold a significant presence, followed by companies in pharmaceuticals, mining, oil and gas, and consumer staples. Each sector contributes differently to the overall index based on market capitalisation. The diversity of industry participation enables the index to function as a snapshot of the wider economic environment. Adjustments to sector weightings occur through routine rebalancing processes.

Index Methodology

The FTSE 100 uses a free-float market capitalisation methodology. This means that only shares readily available for trading are included in the calculation. Company eligibility depends on consistent trading history, compliance with listing standards, and public ownership of shares. Adjustments are made for corporate actions, such as mergers or demergers, in order to preserve consistency in representation.

Eligibility and Review Process

Firms listed in the FTSE 100 are selected based on criteria including public share availability and average daily trading volume. Regular reviews are conducted to update the index composition in alignment with market dynamics. This structured approach ensures that companies listed meet the required thresholds for inclusion. Each periodic assessment follows predefined rules and timeframes.

Liquidity and Trade Volume

Securities included in the FTSE 100 generally demonstrate high liquidity, making them among the most traded on the London Stock Exchange. Their active participation supports efficient price discovery and enables the index to function as a robust benchmark. Liquidity levels also facilitate broader use of the index in structured market instruments and reporting standards.

Market Relevance and Economic Linkage

The FTSE 100 serves as an indicator of the UK stock market's performance and is frequently referenced in relation to overall economic sentiment. As it includes some of the largest publicly listed companies in the country, changes within the index often reflect broader macroeconomic conditions. The index's structure is maintained to ensure alignment with shifting capitalisation and sectoral relevance.

Derivative Instruments Based on the Index

Various derivative products are linked to the FTSE 100, including options and futures contracts. These instruments are widely used for tracking index movement and observing market behaviour. The reliability of the index is reinforced by its transparent calculation methods and the consistent performance of constituent companies.