By: BILL BLEVINS
Financial Correspondent, Blevins Franks
financial@portugalresident.com
MOST READERS will be familiar with the names of the more well-known stock exchange indices but you may not know what they all actually mean or do. If you have ever wondered what the terms FTSE, NASDAQ, Dow Jones, Nikkei and Hang Sang stand for, this article gives a summary of the most common indices to put you in the picture.
Indices are a collection of representative listed companies which help investors to understand how the markets are performing. The companies are usually categorised by their market capitalisation which is a measure of a company’s entire value and estimated by multiplying the number of the company’s shares by the share’s price. If you wished to buy a business, it is a rough guide on the price you would have to pay.
FTSE
The FTSE, otherwise known as “footsie”, gets its name after its owners, the Financial Times (FT) and London Stock Exchange. There are a number of FTSE indices with the five best known being:
FTSE 100 – An index of the100 largest blue chip companies in the UK. It began in 1984 with a 1000 companies and represents just over 80 per cent of the UK market.
FTSE 250 – An index of the largest 250 companies after the FTSE 100. It came about in 1992, consists of mid cap companies and represents around 15 per cent of the UK market.
FTSE 350 – An index combining the FTSE 100 and the FTSE 250 representing approximately 95 per cent of the London stock market.
FTSE All Share – An index of nearly 700 of the largest listed UK companies including the FTSE 100, 250 and 350 indices as well as the FTSE Small Cap Index. It represents approximately 98 per cent of the UK market capitalisation with a combined value of nearly two trillion pounds sterling. The FTSE All Share was originally the FT Actuaries All Share Index and dates back to 1962.
FTS Eurofirst Index Series – Indices to gauge the performance of companies in Europe. The series is a joint product of the FTSE Group and Euronext, an integrated cross border European exchange for equities, bonds, derivatives and commodities. It was launched in 2003 and comprises various indices including the FTS Eurofirst 100 Index and the FTS Eurofirst 300 Index.
Dow Jones Industrial Average (DJIA)
The DJIA was created by Charles Dow in 1896 when it contained twelve companies mainly from the coal and gas industries. Otherwise known as the “Dow”, the DJIA is the oldest and most followed index worldwide. The Dow Jones now comprises 30 prominent blue chip companies listed on the New York Stock Exchange including General Electric, Disney, and Microsoft. General Electric is the only survivor on the index of the original twelve stocks of the Dow Jones.
Standard & Poor’s 500 (S&P 500)
This index comprises 500 US large cap stocks. It is widely used and considered to be a better representation of US equities than the DJIA as it contains more companies. It covers approximately 75 per cent of the US equities market and dates back to 1923.
NASDAQ Composite Index
The NASDAQ is the world’s first and largest electronic stock market. It is a US stock market which started in 1971 and uses an automated computerised information system to trade shares rather than a traditional trading floor. It is owned by the National Association of Securities Dealers (“NASD” – the “AQ” stands for Automated Quotation).
Its Composite Index is the index of all the common stock and other securities listed on the NASDAQ stock market. It therefore includes more than3,000 companies (US and international), more than most other indices. It is considered to be an indicator of how technology and growth companies are performing.
Russell 3000 Index
A leading index of Russell’s 26 indices and includes microcap securities of the Russell Microcap Index. The Russell 3000 represents approximately 99 per cent of the US equity market. As of the latest reconstitution, the average market capitalisation was approximately 5.1 billion US dollars and the median market capitalisation was approximately 1.09 billion US dollars. The index had a total market capitalisation range of approximately 368.5 billion US dollars to 218.4 million US dollars.
Russell 2000 Index
An index of small cap US companies and comprises 2,000 of the smaller securities in the Russell 3000 Index. The Russell 2000 is a comprehensive barometer of small cap companies and is completely reconstituted annually.
Russell 1000 Index
This is an index of large cap US companies representing approximately 92 per cent of the US equities market. It includes the largest 1,000 securities from the Russell 3000 Index.
Nikkei 225
An index of 225 of Japan’s leading blue chip companies listed on the Tokyo Stock Exchange. The Nikkei 225 Stock Average dates back to1949 and is similar to the DJIA, so much so that at one time it was called the Nikkei Dow Jones Stock Average. Usually referred to as the Nikkei and sometimes the Nikkei Dow, it is the most widely quoted Japanese index.
TOPIX (Tokyo Stock Price Index)
This index consists of over 1,500 of the major Japanese companies listed on the Tokyo Stock Exchange, the world’s second largest stock exchange after the New York Stock Exchange. It is the main Japanese index along with the Nikkei 225 and is a benchmark for the overall Japanese stock market.
Hang Seng Index (HSI)
An index of nearly 40 leading stocks on the Hong Kong Stock Exchange and represents just under 70 per cent of the Hong Kong listed market. It was started in 1969 and is owned by the Hang Seng Bank. The HSI has four sections: commerce and industry, finance, utilities and properties.
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