Britain's headline index, and a poor guide to Britain. A hundred companies listed in London that earn most of their money everywhere else — which is why a falling pound often pushes it up.
The FTSE 100 began on 3 January 1984 at a base level of 1,000, created jointly by the Financial Times and the London Stock Exchange — the "FT" and "SE" that give it its name. It arrived because the London derivatives market needed a tradeable benchmark, which is the same reason most of Europe acquired national indexes over the following five years.
Its rule is straightforward: the hundred largest companies by float-adjusted market capitalization with a full London listing, reviewed quarterly. No committee discretion of the kind that governs the S&P 500 — if a company qualifies at the review date, it enters.
The FTSE 100 is not really a bet on the British economy. The large majority of its constituents' revenue comes from outside the United Kingdom — the index is dominated by global miners, oil majors, banks with international operations, and consumer goods companies selling worldwide. Britain is where they list, not where they earn.
This produces a relationship that reads as backwards until you see the mechanism.
For anyone using the index as a read on British economic health, this is a serious complication. For anyone using it as exposure to global commodity and consumer businesses that happen to list in London, it works exactly as intended.
The FTSE 100 has historically been weighted toward financials, energy, mining, healthcare and consumer staples — the industries of an older economy — and notably light on technology. That composition explains most of its long-run divergence from US benchmarks: the sectors that drove American index returns over the past fifteen years are barely represented in London.
Whether that is a weakness or a feature depends on the decade. The same mix that lagged badly through a technology-led bull market performed comparatively well in periods when energy and commodities led.
Weakly. Its constituents earn most of their revenue overseas, so the index can rise while the domestic economy weakens. The FTSE 250 is a closer proxy.
Overseas earnings translate into more pounds. Reported sterling profits increase without any change in underlying business, and the index follows.
Carefully — the headline DAX is a total-return index and the FTSE 100 is not. Comparing the two quoted levels over time compares dividends-included against dividends-excluded.