What Are the FTSE Indices?
The FTSE (Financial Times Stock Exchange) indices are benchmarks that track the performance of companies listed on the London Stock Exchange (LSE). Managed by FTSE Russell, they are among the most closely watched financial indicators in the UK, quoted daily in financial news and used by fund managers worldwide as performance benchmarks.
For UK investors, understanding what these indices represent — and what they don't — is essential context for making sense of market headlines and evaluating your own portfolio.
The FTSE 100: Britain's Blue-Chip Index
The FTSE 100 (often called the "Footsie") comprises the 100 largest companies listed on the LSE by market capitalisation. It includes household names across sectors such as energy, mining, banking, consumer goods, and pharmaceuticals.
Key things to understand about the FTSE 100:
- It's global, not just British: A significant proportion of FTSE 100 companies earn the majority of their revenues overseas. This means the index often moves inversely to the pound — when sterling weakens, overseas earnings translate back into more pounds, boosting the index.
- It's heavily concentrated: The top 10 companies can account for a substantial share of the total index weight, meaning moves in a handful of giants can dominate overall performance.
- Sector skew: The FTSE 100 is relatively light on technology companies compared to US indices. It has historically had heavy representation in financials, energy, and mining.
- Dividend income: FTSE 100 companies have traditionally been generous dividend payers, making the index attractive to income-seeking investors.
The FTSE 250: A More Domestic Barometer
The FTSE 250 covers the next 250 largest UK-listed companies after the FTSE 100. These are mid-cap businesses that tend to be more domestically focused — meaning the index is a better proxy for the health of the UK economy than the FTSE 100.
Why the FTSE 250 matters:
- It reacts more directly to UK-specific economic news — interest rate decisions, GDP data, and domestic consumer confidence.
- Mid-cap companies often have greater growth potential than the largest blue-chips.
- It includes many well-known UK brands and businesses that generate most of their income domestically.
FTSE 100 vs FTSE 250: A Comparison
| Characteristic | FTSE 100 | FTSE 250 |
|---|---|---|
| Number of Companies | 100 | 250 |
| Company Size | Large-cap (blue-chip) | Mid-cap |
| Revenue Geography | Mainly global | Mainly UK domestic |
| Economic Sensitivity | Lower UK sensitivity | Higher UK sensitivity |
| Volatility | Generally lower | Generally higher |
| Growth vs Income | More income-oriented | More growth-oriented |
The FTSE All-Share
The FTSE All-Share combines the FTSE 100, FTSE 250, and FTSE SmallCap into a single index, covering approximately 600 companies and representing around 98% of UK listed equity by market capitalisation. For investors wanting broad UK market exposure, an FTSE All-Share tracker fund is a common and cost-effective choice.
How Bank of England Decisions Affect the Indices
Interest rate decisions by the Bank of England (BoE) have a direct impact on UK equity markets. Rate rises typically pressure equities (as borrowing costs increase and bonds become more competitive), while rate cuts tend to support stock valuations. The FTSE 250, with its domestic focus and smaller companies more reliant on borrowing, is often more sensitive to BoE decisions than the FTSE 100.
Key Takeaways for Investors
- Don't treat the FTSE 100 as a simple gauge of the UK economy — it's a global revenue index listed in London.
- The FTSE 250 is a more reliable domestic economic barometer.
- For broad UK exposure, consider an FTSE All-Share tracker fund.
- Monitor Bank of England policy and sterling movements as key drivers of index performance.
This article is for informational purposes only and does not constitute financial advice.