Investing in the FTSE 100 index lets you own a piece of the UK's top companies, offering a chance for growth and diversification. This guide covers simple ways to get started, like using ETFs, mutual funds, and online platforms, making it easy for Australians to invest in the UK if they wish.

An introduction to the FTSE 100 index

The FTSE 100 index, or the Financial Times Stock Exchange 100 Index, is a stock market index that tracks the largest companies listed on the London Stock Exchange. Often seen as a barometer of the UK economy, the FTSE 100 includes the top 100 companies by market capitalisation, representing a wide array of sectors such as finance, energy, and consumer goods.

Investors around the world keep a close eye on this index to understand economic health and market trends in the UK. Its significance lies in its ability to capture the performance of major market players, making it a popular benchmark for investment portfolios and financial products like index funds and exchange-traded funds (ETFs) .

The origins and evolution of the FTSE 100

Launched on 3 January 1984, the FTSE 100 was born out of a collaboration between the Financial Times and the London Stock Exchange. It was created to offer a more comprehensive and accurate reflection of the UK stock market compared to existing indices.

Starting with a base level of 1,000 points, the FTSE 100 has grown and evolved, adapting its composition to mirror the ever-changing market and economy. Today, it represents approximately 81% of the UK's market capitalisation, underscoring its importance to investors and analysts worldwide.

How companies are chosen for the FTSE 100

Selection is based on a transparent methodology managed by FTSE Russell, a global provider of benchmarks, analytics, and data solutions for investors.

Being part of the FTSE 100 is perceived by many companies as a mark of prestige, signifying market prominence. To qualify, companies must meet stringent criteria, including:

• Market cap: Only the largest companies are considered
• Liquidity: Companies must have a high level of trading activity
• Nationality: Firms must be incorporated and listed in the UK

Regular quarterly reviews ensure the index remains representative of the UK's largest and most liquid companies.

The significance of the FTSE 100

The FTSE 100 is more than just a list of top corporations – it's a vital barometer of the UK's economic health. Its influence stretches far beyond British shores, impacting global markets and guiding investment strategies worldwide.

Here's why the FTSE 100 is so significant:

• Market representation: The FTSE 100 seeks to provide a comprehensive snapshot of the nation’s economic performance
• Investment benchmark: Investors rely on the FTSE 100 to benchmark their portfolios, helping them gauge how well their investments are performing relative to the market
• Economic indicator: The index’s fluctuations mirror broader economic trends, offering insights into economic health and investor sentiment
• Foundation for financial products: Many financial products, such as ETFs and mutual funds , are based on the FTSE 100, providing investors with diverse and accessible investment options

Key companies in the FTSE 100

These companies span various industries, offering the potential for a diversified portfolio . Here are some prominent companies within the FTSE 100:

• HSBC Holdings: One of the world's largest banking and financial services organisations, HSBC is a cornerstone of global finance
• Royal Dutch Shell: A powerhouse in the energy sector, Shell's operations in oil exploration and production impact energy markets worldwide
• AstraZeneca: Leading in biopharmaceuticals, AstraZeneca focuses on innovative treatments for diseases like cancer and asthma
• Unilever: Known for household brands such as Dove, Magnum, and Lipton, Unilever is a staple in consumer goods
• GlaxoSmithKline (GSK): A key player in global health, GSK specialises in pharmaceuticals, vaccines, and consumer healthcare
• BP: Another major energy sector player, BP is involved in oil and gas exploration, production, and distribution
• Diageo: The world's largest spirits producer, Diageo boasts brands like Johnnie Walker and Guinness
• Vodafone: A telecommunications giant, Vodafone provides mobile and broadband services to millions worldwide
• Barclays: This multinational investment bank and financial services company plays a pivotal role in global finance

Investing in the FTSE 100 from Australia

Investing in the FTSE 100 from Australia is easier than ever with a variety of international investment options. Here are some popular ways to get started:

ETFs

One of the simplest ways for Aussie investors to access the FTSE 100 is through ETFs. These funds are listed on the Australian Securities Exchange (ASX) and track the performance of the FTSE 100.

Some of the FTSE 100 ETFs you can trade on Pearler include:

• BetaShares Ftse 100 ETF (F100) : This ETF provides a cost-effective and diversified investment in the FTSE 100
• BetaShares Ftse 100 Currency Hedged ETF (H100) : This ETF offers exposure to the FTSE 100 while mitigating the impact of currency fluctuations between the British Pound (GBP) and the Australian Dollar (AUD)

Managed funds

These funds often include FTSE 100 stocks and are managed by professionals who select and oversee a diverse portfolio of international equities. They can be accessed through financial advisers or directly via fund management companies.

Online platforms

Some online trading platforms allow you to invest in individual stocks in the FTSE 100.

Risks associated with investing in the FTSE 100

As with any investment, it's important to recognise the associated risks. For Aussie investors looking to diversify with international assets, understanding these risks is key.

• Market risk: The FTSE 100 can be influenced by economic conditions, political events, and global trends. A downturn in the UK economy could negatively impact the index and your investments
• Currency risk: Fluctuations between the AUD and GBP can impact your returns. A weakening GBP against the AUD may reduce the value of your investment
• Liquidity risk: Although the FTSE 100 includes large-cap companies , some stocks may be less liquid, potentially making it challenging to sell investments quickly without affecting the price
• Concentration risk: While diversified across sectors, the FTSE 100 is still concentrated in one market, exposing investors to sector-specific downturns, especially in finance and energy
• Regulatory risk: Changes in UK financial regulations can affect the operations and profitability of FTSE 100 companies, potentially impacting the index's performance

Investing in the FTSE 100 from Australia is accessible through ETFs, managed funds, and online platforms. By grasping the selection process, major companies, and potential risks, you can make more informed choices. And for advice that’s tailored to your financial goals, circumstances and risk tolerance , consult a financial adviser.

Happy investing!