More widely based indices have been developed by the Financial Times, the London Stock Exchange and the British Institute and Faculty of Actuaries. These are managed by a joint company, FT-SE International. These indices are arithmetically weighted by market capitalisation rather than being based simply on price movements. That is to say, the larger the company, the larger will be the effect of its price movements on the index.
The FT-SE Actuaries share indices, and particularly the All-Share Index, are the professional investor’s yardstick for the whole UK equity market, and are used in analysing investment strategies and as a measure of portfolio performance. The All-Share Index comprises 38 indices representing different industrial sectors, and 8 component indices relating to different levels of capitalisation. The FT-SE 100 (widely known as the Footsie) is one of these components.
FT-SE 100 – Known as the Footsie, this index was inaugurated in January 1984 with a base of 1000. At that time, the FT-30 was calculated only hourly, and there was demand for a constantly updating (real-time) index, particularly in view of the requirements of the new traded options and financial futures markets. For most purposes the Footsie has replaced the FT-30. Amended quarterly, this index includes the 100 largest UK companies in terms of market capitalisation and represents over 70% of the total All-Share market capitalisation.
FT-SE Mid 250 – An index of the next 250 companies in market capitalisation,
following on from the FT-SE 100. These are companies capitalised at between
GBP 250 million and GBP 1 billion – totalling around 20% of the overall
market capitalisation. It is calculated in 2 ways, including and excluding
investment trusts.
FT-SE-A 350 – Combines the FT-SE 100 and the FT-SE Mid 250.
FT-SE-A 350 Higher Yield and Lower Yield – Introduced in 1995, these two indices are calculated by a quarterly descending ranking of the 350 companies by the size of their annual dividend yield, and then divided intotwo equal halves as measured by overall capitalisation of the 350 component companies.
FT-SE SmallCap – An index of the 500-600 companies capitalised at between GBP 40 million and 250 million, including the smallest 450 companies in the All-Share Index. As with the Mid 250, this index is calculated in two formats.
Industrial Groups – Aggregate performance measures for key industrial sectors, providing investors with a valuable yardstick for assessing the performance of a stock within its sector. The group comprises: Mineral Extraction, General Industrials, Consumer Goods, Services and Utilities – each of which is further subdivided. The sub-sectors are broken down into their constituent companies in the London share service.
Non-Financials – Formerly known as the “FT 500”, this includes all companies except financial and property companies and investment trusts. It is comprised of over 650 companies.
Financials and Investment Trusts – Financial and property companies broken down into six sub-sectors plus investment trusts.
FT-SE-A All-Share Index – All 900 plus companies capitalised at over GBP 40 million. Calculated daily since 1962, this is a far more representative index of overall economic performance than the Footsie. Its mathematical structure makes it a valuable reference against which to measure portfolio performance and is therefore an essential yardstick used by all investment managers.
FT-SE-A Fledgling – Introduced in 1995, this index includes over 800 smaller companies that fail to qualify for the All-Share Index, representing 1-2% of total market capitalisation. It is calculated in two ways, with and without investment trusts.
Understanding the figures:
All Indices – The UK series lists yesterday’s closing value for each index as well as the percentage change on the previous day, the three previous days’ closing values and the value of the index one year ago. The further performance indicators of dividend yield, net dividend cover and price/earnings ratio for each index are also provided. Sector values for these ratios can be used as benchmarks for the performance of individual stocks within a sector.
Ex-dividend Adjustment Year-to-Date – When a share goes ex-dividend (Xd), its price will drop by the amount of the dividend per share. This is the ex-dividend adjustment. The figure in the index is the cumulative total of the aggregate of the gross ex-dividend adjustments multiplied by the relevant number of shares in issue. It allows assessment of income flow within a portfolio over the year.
Total Return – Calculated at the close of each trading day, Total Return
figures reflect both the price and dividend performance of the stocks. Starting
each year at 1000, it incorporates share price appreciation for the year plus
ex-dividend adjustments year-to-date, assuming that dividends are reinvested.