What the FTSE 100 Actually Tracks (And Why It's Not the UK Economy)

The FTSE 100 is widely quoted but widely misunderstood. Here's what it actually measures, why most of its revenue comes from overseas, and what that means for investors.

What the FTSE 100 Actually Tracks

This guide is part of our [UK Stock Market](/learn/uk-stock-market) series.

The FTSE 100 is the most widely quoted UK stock market index — and one of the most widely misunderstood. When the news says "UK shares fell today", they mean the FTSE 100. But the FTSE 100 is not a measure of the UK economy, and the 100 companies in it earn most of their revenue from overseas.

This matters for investors because it affects what risk you're actually taking on when you invest in FTSE 100 companies.

What is the FTSE 100?

The FTSE 100 (often called the "Footsie") is an index made up of the 100 largest companies listed on the London Stock Exchange, ranked by market capitalisation.

It is maintained by FTSE Russell and recalculated in real time during market hours.

Many FTSE 100 companies are global businesses. Shell earns most of its revenue from global energy markets. AstraZeneca sells pharmaceutical drugs across 100+ countries. HSBC generates a majority of its profits in Asia. Their shares happen to be listed in London, but the UK economy is only a small part of their story.

This is why the FTSE 100 often rises when sterling falls — the overseas earnings of constituent companies are worth more in pounds when the pound weakens. It can feel counterintuitive: bad news for the UK economy, but up goes the index.

→ Browse FTSE 100 companies on openbook | → See Shell's full factor analysis

How the FTSE 100 is calculated

Market-capitalisation weighting

The FTSE 100 is market-cap weighted, meaning larger companies move the index more than smaller ones.

Company size	Impact on FTSE 100
Very large company	High influence
Mid-sized constituent	Moderate influence
Smallest member	Limited influence

If a handful of the biggest companies rise or fall sharply, the index can move even if most members barely change.

A common mistake is assuming each company "counts the same". In practice, weight matters more than headcount.

Quarterly reviews

The index is reviewed four times a year.

Review month	What happens
March	Promotions and relegations
June	Index rebalancing
September	Membership updated
December	Final annual review

Companies can move into or out of the FTSE 100 as their market value changes. Membership is not permanent.

What drives FTSE 100 performance?

Several factors tend to matter more than UK economic growth alone:

1. Global earnings

Many FTSE 100 firms earn profits overseas. Global demand, commodity prices, and international growth often matter more than UK GDP.

2. Currency movements

A weaker pound can boost reported earnings for companies earning dollars or euros — which can lift the index even when the UK economy struggles.

3. Sector concentration

Sector (approx.)	Typical weight
Energy & mining	High
Financials	High
Consumer staples	Medium
Technology	Low

This explains why the FTSE 100 behaves very differently from US indices like the S&P 500.

FTSE 100 vs FTSE 250

Many investors group "the UK market" into one bucket. In practice, the split matters.

Feature	FTSE 100	FTSE 250
Company size	Largest	Mid-sized
Revenue source	Mostly global	More UK-focused
Volatility	Typically lower	Typically higher
Dividend focus	Higher	Lower

Over shorter periods, the two indices can behave very differently. Domestic economic news often affects the FTSE 250 more than the FTSE 100.

*FTSE 100 = global exposure via UK listings*

*FTSE 250 = closer link to the UK economy*

Dividends and income

The FTSE 100 is known for its relatively high dividend yield compared with many overseas indices.

There are structural reasons for this:

Mature companies with steady cash flows
Fewer high-growth firms reinvesting all profits
A long-standing UK culture of dividend payments

That said, dividends are not guaranteed. Payouts can be cut or suspended, especially during economic stress. During the 2020 pandemic, dozens of FTSE 100 companies cut or suspended dividends.

Many investors focus on dividends without considering sustainability. Understanding *why* a dividend exists matters more than its headline yield.

For more on tracking dividend income, see our Dividend Tracker UK guide.

What the FTSE 100 is (and isn't) good at measuring

What it does well

The FTSE 100 is often used to:

Track performance of large, established companies
Compare UK market returns over long periods
Provide income signals, as many constituents pay dividends
Act as a reference point for funds and pensions

Because many FTSE 100 firms are global, the index can sometimes hold up better than purely domestic UK indicators when sterling weakens.

What it doesn't do well

It's less useful for:

Measuring the health of the UK economy
Capturing fast-growing smaller companies
Representing newer industries and technology firms

Sectors like energy, mining, and financials tend to dominate, while technology has a much smaller presence than in US indices.

Common mistakes investors make with the FTSE 100

Assuming it reflects the UK economy – It's more global than domestic
Watching only the headline number – Total return includes dividends
Ignoring sector concentration – A few sectors dominate
Chasing high dividends without context – Yield can be misleading
Treating index membership as fixed – It changes quarterly

Analysing FTSE 100 Companies on Openbook

Individual FTSE 100 companies vary enormously in quality. The index contains both resilient global businesses with strong balance sheets and mature, slow-growing companies propped up by high yields.

Openbook's 7-factor model scores each FTSE 100 company across Growth, Momentum, Profitability, Valuation, Balance Sheet, Cash Flow, and Volatility. This lets you compare companies that look similar on the surface — for example, two energy majors with similar yields but very different cash flow quality or balance sheet strength.

Some examples worth exploring:

Shell (SHEL) — one of the index's largest constituents by weight; strong cash generation
AstraZeneca (AZN) — high Profitability and Growth scores, higher Valuation than most UK peers
Lloyds (LLOY) — domestic UK bank; dividend-focused, sensitive to UK interest rates
BP (BP.) — energy major with a different financial profile and restructuring history to Shell
British American Tobacco (BATS) — very high yield, but the Balance Sheet and Cash Flow factors tell a more complex story

openbook lets you:

See which FTSE 100 companies you own and how they score across all 7 factors
Understand sector concentration in your portfolio
Track dividend income alongside factor-based risk signals

Start free with openbook (no card) →

Frequently Asked Questions

Is the FTSE 100 the same as the UK stock market?

No. It covers only the largest 100 listed companies. Thousands of other shares trade in the UK outside the index.

Why does the FTSE 100 sometimes rise when the UK economy struggles?

Many companies earn revenue overseas. Currency moves and global conditions can matter more than domestic growth.

How often does the FTSE 100 change?

It's reviewed quarterly, with changes based on company size.

Is the FTSE 100 mainly for income investors?

It's often associated with income, but outcomes depend on dividends, valuations, and market conditions.

Can one company dominate the index?

Large companies have more weight, but caps are applied to prevent extreme concentration.

Does a higher FTSE 100 always mean investors are doing well?

Not necessarily. Returns depend on timing, dividends, inflation, and individual circumstances.

What's the difference between FTSE 100 price return and total return?

Price return shows index movement only. Total return includes reinvested dividends, which historically account for a significant portion of returns.