The FTSE Group which is owned and operated by the London Stock Exchange first came out of a joint venture with the Financial Times. As a result, the acronym “FTSE” has remained to this day even though the Financial Times doesn’t have much to do with it. The FTSE 100 is made up of 100 qualifying companies from the United Kingdom. The FTSE 100 market cap will reflect the market value. A lot of these large companies are globally focused, so it can’t be used as a tool to ascertain the health of the U.K. economy.
However, the FTSE 250 is a better indicator as to how the economy is fairing because it has fewer international companies.
What is Market Capitalization?
Market capitalization or market cap is basically the market value of the share capital issued by a company. This means that the value is calculated multiplying the number of shares by the current price of those shares in the stock market.
So the FTSE 100 market cap would be the value of the companies that are listed. The FTSE 100 market cap will have companies ranked as follows:
This will depend on the market capitalization value of each company although exact criteria for classification will depend on the market. The FTSE market cap represents more than 80% of the entire market capitalization of the London Stock Exchange.
There are several requirements set out by the FTSE Group that must be met by companies. These include having a full listing with a Sterling price on the London Stock Exchange. It will also need to have a Euro denominated price for the Stock Exchange Electronic Trading Service.
Further, companies will also need to meet certain criteria in relation to nationality, liquidity, and free float.
What Does it Mean to be Weighted?
The FTSE 100 is a market capitalization weighted index. This means that the FTSE 100 market cap weight is calculated by market value as measured by capitalization.
But it’s not just the FTSE 100, the majority of equity indexes these days are cap-weighted. For example, the S&P 500 is a market capitalization weighted index. In a cap-weighted index, movements in the value of larger securities will change the overall trajectory a lot more than movements made by smaller companies on the index.
Further, by understanding how the index is weighted, you can also make better predictions as to how it will fair in the future.