Key Differences Between FTSE 100 and FTSE 25

The FTSE 100 and FTSE 250 are two major stock market indices in the UK, comprising different sets of companies. While the FTSE 100 includes the largest 100 companies in the UK, the FTSE 250 comprises the next 250 companies.

Each index provides distinct insights into the UK economy, investment opportunities, and market trends, making it crucial for investors to make informed decisions based on their financial objectives and risk tolerance.

Let’s look at the major differences between FTSE 100 and FTSE 250.

What is FTSE 100?

The FTSE 100, also known as the Financial Times Stock Exchange 100 Index, is a stock market index representing the 100 largest publicly traded companies in the United Kingdom based on market capitalization. It serves as a benchmark for the overall performance of the UK stock market and is closely watched by investors worldwide.

What is FTSE 250?

The FTSE 250, on the other hand, is another stock market index in the UK, comprising the 250 companies that follow the largest 100 companies in terms of market capitalization. It represents a broader and more diverse range of mid-sized companies compared to the FTSE 100.

FTSE 100 vs FTSE 250: Differences

Incorporation

The FTSE 100 has a history spanning over 36 years, dating back to its inception in January 1984. It was introduced as a replacement for the FT30, which had previously served as the primary benchmark for assessing the performance of companies listed on the London Stock Exchange (LSE) during that era.

On the other hand, The FTSE 250 index was launched on October 12, 1992. It was created to represent the next 250 largest companies listed on the London Stock Exchange (LSE) after the FTSE 100, offering a broader view of the UK's mid-cap stock market segment.

Composition

The FTSE 100 represents the 100 largest publicly traded companies listed on the London Stock Exchange, as measured by market capitalization. These constituents are the corporate giants of the UK, with many of them operating globally and covering a wide range of sectors, including finance, energy, healthcare, consumer goods, and telecommunications.

Conversely, the FTSE 250 encompasses the next tier of companies in size, following the FTSE 100. These firms are collectively referred to as mid-cap companies, and while they may not be as massive as FTSE 100 constituents, they are by no means small. They represent diverse industries, including technology, industrials, and smaller financial institutions.

Historical performance

The historical performance of the FTSE 100 and FTSE 250 reveals distinct patterns.

The FTSE 100, comprising large, stable companies, tends to exhibit lower volatility and is less susceptible to rapid price fluctuations. Even during the pandemic, it slumped 14.3%, less than other indices like DJIA, which fell by over 26%, and FTSE 250 companies falling by 27% to 53%. This makes it an attractive choice for investors seeking stability in their portfolios and a reliable stream of dividend income. Over time, the FTSE 100 has delivered moderate but consistent returns.

Conversely, as discussed above, the FTSE 250 has displayed higher volatility due to its constituent companies' smaller, more dynamic nature. While this increased volatility may introduce greater risk, it also offers the potential for higher returns. Investors seeking growth and willing to tolerate higher fluctuations in their investments often turn to the FTSE 250, where they may find opportunities for capital appreciation.

Net market capitalization

The FTSE 100 has a significantly higher total market capitalization than the FTSE 250 of 1,902,255 GBP, with the highest market cap belonging to the biopharmaceutical company AstraZeneca equalling 173 billion GBP as of 2023 and the smallest market cap belonging to Johnson Matthey plc equalling 4.11 billion USD. This is a direct consequence of the FTSE 100's inclusion of massive multinational corporations such as AstraZeneca, HSBC Holdings plc, Shell plc, and more, with vast market values, which we will discuss in further segments.

On the other hand, the FTSE 250, while substantial in its own right, is populated by companies that are smaller in scale when compared to FTSE 100 giants and has an overall market cap of 323,245 GBP as of 2023. Its largest market cap belongs to Carnival Corporations plc, equalling 24.68 billion USD; the smallest belongs to Cineworld Group plc, equalling 6.5 million USD as of 2023. This renders it more susceptible to market fluctuations and economic shifts, impacting its overall performance. However, it is important to note that this increased volatility can also translate into greater opportunities for investors seeking growth.

Top industries

The composition of the FTSE 100 and FTSE 250 indices reflects the diversity of industries within the UK economy. The FTSE 100 is heavily weighted toward financial services, energy, consumer goods, healthcare, and telecommunications sectors. The consumer goods/staples industry is one of the largest, with a 19.38% contribution to the FTSE 100 index as of 2022, followed by the financial services sector, contributing 17.67%. Many of these industries are associated with consistent cash flows, contributing to the FTSE 100's reputation for reliability.

In contrast, the FTSE 250 presents a broader range of industries. While it includes companies from sectors found in the FTSE 100, it also features a significant presence of technology, industrials, and smaller financial firms. However, its largest contributors still remain the financial services (43.37%), industrials (15.41%), and consumer goods industry (12.92%) as of 2022. This diversity means that the FTSE 250 can be more dynamic, potentially experiencing rapid growth in specific sectors or during economic upturns.

Calculation

Both the FTSE 100 and FTSE 250 indices employ a market capitalization-weighted calculation. This means that the companies with the highest market capitalization influence the index's overall value the most. In essence, larger companies substantially impact the index's movements, reflecting their dominance in the market.

This calculation method aligns with the reality of market dynamics, where the performance of major companies carries more weight in assessing the market's overall health. As a result, both indices accurately represent the performance of their respective segments within the UK stock market.

Top companies

The top 3 companies based on their market capitalization (cap) as of 2023 in the FTSE 100 are:

AstraZeneca plc (AZN) is a British pharmaceutical company resulting from the merger of Astra AB, founded in 1913, and Zeneca Group PLC, founded in 1993. With a market capitalization of $224.80 billion, it operates in the healthcare sector, specializing in developing and manufacturing prescription drugs. AstraZeneca's focus spans various therapeutic areas, including oncology, cardiovascular, respiratory, and more, contributing to advancements in medical treatments globally.
Shell plc (SHEL), founded in 1907 as Royal Dutch Shell, has a market capitalization of $200.59 billion. It engages in oil and gas exploration, production, refining, distribution, and marketing in the energy industry. Shell's commitment to renewable energy and environmental solutions reflects its role as a global energy company addressing diverse energy needs.
HSBC Holdings plc (HSBA), founded in 1865 as the Hong Kong and Shanghai Banking Corporation (HSBC), commands a market capitalization of $156.02 billion in the financial sector. It offers various banking services, including retail banking, commercial banking, wealth management, and investment banking, serving individuals and businesses globally.

The top 3 companies based on their market capitalization (cap) as of 2023 in FTSE 250 are –

Carnival Corporation plc (CCL), with a market capitalization of $24.68 billion, is a major player in the United States consumer discretionary sector. The company specializes in providing travel services, primarily cruise vacations, through its fleet of cruise ships. Carnival Corporation & plc operates globally, offering travelers a diverse range of cruise experiences worldwide.
Centrica plc (CNA), based in the United Kingdom, has a market capitalization of $8.82 billion and operates within the utility industry. Centrica is involved in diversified utility services, encompassing electricity and gas supply, energy trading, and related services. The company plays a role in ensuring reliable utility services for consumers.
The Weir Group plc (WEIR), with a market capitalization of $5.93 billion, operates in the United Kingdom's industrial sector. The Weir Group specializes in producing specialty industrial machinery, which is used in various applications, including mining, oil and gas, and power generation, contributing to the efficiency and productivity of these industries.

Geographic exposure

Companies in the FTSE 100 often have more significant international exposure due to their global operations. For example, banks like HSBC and multinational corporations like Unilever derive substantial revenues outside the UK. As a result, the FTSE 100 can be influenced by global economic conditions and currency fluctuations.

Conversely, the FTSE 250 constituents are often more domestically focused. Their revenue streams are primarily tied to the UK market, making the index more sensitive to UK-specific economic trends and developments.

Investment strategy: Growth vs. Income

Investors in the FTSE 100 often seek stability, reliable income, and dividend payments. FTSE 100 companies are known for their stable dividend yields, making this index appealing to income-oriented investors. The focus here is typically on preserving capital and generating a steady income stream. However, it's important to note that, like any investment, FTSE 100 companies are exposed to various risks, including economic downturns, market volatility, regulatory changes, and geopolitical events, which can impact stock prices and dividend payouts. As such, investors should carefully consider their risk tolerance and conduct thorough research before making investment decisions in the FTSE 100.

In contrast, the FTSE 250 attracts investors looking for growth potential. Its smaller and more dynamic constituents may offer higher growth rates, though with increased volatility. Investors in the FTSE 250 are often willing to tolerate higher risk in exchange for the potential for substantial capital appreciation. However, it's crucial to acknowledge that this pursuit of growth in the FTSE 250 comes with an elevated level of risk, including market volatility, economic uncertainties, and the inherent challenges faced by smaller and mid-sized companies, which can impact investment outcomes. As such, investors should carefully assess their risk tolerance and conduct thorough due diligence when considering investments in the FTSE 250 or similar growth-focused indices.

Risk profile

The FTSE 100 is often perceived as less risky due to the inclusion of larger, more established companies. These firms have a track record of weathering economic downturns, which can provide a degree of stability. However, the FTSE 100 can still be affected by global economic events, currency fluctuations, and changes in commodity prices.

Conversely, the FTSE 250 carries a higher risk profile due to the smaller and potentially more volatile nature of its constituent companies. These firms can be more sensitive to economic shifts and market sentiment. While this increased volatility introduces risk, it also offers the potential for higher returns, attracting investors seeking growth opportunities.

FTSE 100 vs FTSE 250: Which one is the right choice?

Investors seeking stability, reliable income, and lower risk tolerance may find FTSE 100 companies appealing due to their stable dividend yields. In contrast, those with a higher risk appetite and a desire for potential growth should consider the FTSE 250, though they should be prepared for increased volatility and market uncertainties. Careful assessment of individual risk preferences is essential for making informed investment decisions in either index.

Disclaimer:

The material published on this website is general information only and does not take into account your objectives, financial situation or needs .Trading FX and CFDs on margin involves a high level of risk and may not be suitable for all investors. As margin FX/CFDs are highly leveraged products, your gains and losses are magnified, and you could lose substantially more than your initial deposit. Investing in margin FX/CFDs does not give you any entitlements or rights to the underlying assets (e.g. the right to receive dividend payments).

** Past performance is not a reliable indicator of future performance.

FTSE 100 vs FTSE 250: What’s The Difference?