Charlotte Street Partners

VIEW FROM THE STREET

VIEW FROM THE STREET

The story of the FTSE

Written by James Ashton, co-author of FTSE: The Inside Story
29 December 2020

For 37 years this January, the FTSE 100 has tracked the fortunes of the 100 largest qualifying stocks listed in London. It’s a confidence barometer – the easiest and often best place to start to take the economic temperature – but was long ago adopted by the investment industry as a performance benchmark.

 

In fact, it was created in 1984 to capture a slice of the developing options and futures markets. Measuring the minute-by-minute performance of a basket of stocks was revolutionary, especially set against the FT 30, which had been compiled since 1935 from prices collected manually from jobbers on the stock exchange floor and updated several times a day.

 

The tension between Footsie’s parents the Financial Times and the London Stock Exchange rumbled on for years, especially when their gentlemen’s agreement needed formalising so the growing family of indices could be commercialised. FTSE International was created in 1995 as a joint venture company, led by Mark Makepeace, who had joined the exchange pre-Big Bang.

 

Makepeace plotted how to take the brand to customers in the US and expand its reach to untapped territories such as China, South Korea and Saudi Arabia, which were seeking acceptance from the international investment community.

 

FTSE, now FTSE Russell and wholly owned by the stock exchange since 2011, grew to become one of the big three index providers, along with MSCI and S&P Dow Jones Indices. They have boomed on the back of the rise of exchange-traded funds (ETFs) and the inexorable shift from active to passive investing.

 

To cater for this demand, today there are almost three million indices globally, despite there being only 60,000 stocks in the world. FTSE manages around 200 index families that enable investment by country, asset class, industry, size or strategy.

 

There are numerous opportunities ahead – such as the indexation of privately-held assets – but also tensions. Fund managers who are being squeezed by clients to cut costs resent the generous profit margins of the big three. Cheaper start-ups have emerged, such as Frankfurt-based Solactive, that help fund managers replicate index services for themselves.

 

So how will the market develop? Is it wise for a fund manager to measure their own performance against an index created and managed in-house? How much power do FTSE and its peers wield over the $40tn and counting benchmarked against its tools? With the boundaries between fund managers and index providers blurring join us to discuss these questions and more with Mark Makepeace and James Ashton, co-authors of FTSE: The Inside Story, at 3.00pm on 7 January. We kindly ask that you RSVP via the following link to our website.

James Ashton is a senior financial journalist who has covered some of the biggest economic and corporate stories of recent times. He was city editor and executive editor of the Evening Standard and Independent titles and before that city editor of The Sunday Times. Today he is a business commentator and interviewer for the Telegraph and Times and produces his own influential leadership podcast, ‘Leading with James Ashton‘.

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