12 July 2023
If you are an online trader, you will have come across the FTSE 100 and the FTSE 250, but are you aware of their history? Performance is everything as an online trader, so which one do you think has performed best over the years? You might be surprised!
Before going any further, it is essential to point out that historical performance is no guarantee of the future. Now, let's look at the history!
The term FTSE refers to the Financial Times Stock Exchange, which is perhaps the best-known set of stock market indices in the world today. As an online trader, knowing the history and setup of a stock market can make it easier to understand how it works.
Before we look at the history in more detail, the FTSE 100 represents the top 100 companies, and the FTSE 250 represents the following 250 most prominent companies. There is also an FTSE 350, which incorporates the components of both indices, but we will focus on the FTSE 100 and the FTSE 250.
Originally part of the Financial Times, later to become part of Pearson Group, the FTSE indices joint venture with the London Stock Exchange was moved into a separate entity. Pearson Group then sold off its share in the joint venture, now entirely owned by the London Stock Exchange.
This was the date of the first Financial Times index to be launched, not the FTSE 100 or the FTSE 250; this was the FT All-Shares index. This covered 600 of the largest companies listed on the London Stock Exchange.
In this year, we saw the launch of the FTSE 100, initially at a base level of 1000 points, yet another feather in the cap of the London Stock Exchange, a world-leading financial market.
Several additional indices were created in 1992, including the FTSE 250 and the FTSE 350, which are essential but don't grab anywhere near the same headlines as the FTSE 100.
As we touched on above, the FTSE indices were originally part of the Financial Times, then moved to the Pearson Group, and it was in 1995 the FTSE Group was created. This was a partnership between Pearson Group and the London Stock Exchange, although from 2011 it would be solely owned by the London Stock Exchange.
In August 1997, the FTSE 100 passed 5000 points, a 400% increase from the launch level in 1984. The FTSE 250 followed soon after reaching this landmark figure in February 1998. The FTSE 100 reached 6930.20 in December 1999, a figure it would not see again for 15 years.
Unfortunately, the dotcom bubble burst at the turn of the century. We then saw the FTSE 100 and the FTSE 250 both crashing below 4000 in 2003.
As markets began to recover, the FTSE 250 significantly outperformed the FTSE 100, with the FTSE 250 hitting 15,000 in October 2013 while the FTSE 100 achieved less than half that level. The divergence was caused by the FTSE 100 being more exposed to global companies while the FTSE 250 was more focused on smaller regional companies.
The US subprime mortgage crash saw the FTSE 100 and the FTSE 250 fall by a similar amount as investors ran for the hills. Again, recovery in the FTSE 250 was much quicker than the FTSE 100 due to a lack of global exposure and the FTSE 100's 12.67% exposure to banks against just 0.36% in the FTSE 250.
Brexit hit the headlines after the vote on 23 June 2016, with many forecasting a bigger hit for the FTSE 250. As it happened, while global companies on the FTSE 100 benefited due to a weaker pound (helpful when transferring overseas earnings back into sterling), there was also a benefit for FTSE 250 companies. Both indices went on to hit new highs in late 2016.
An annual increase of 28.9% in 2019 was followed by a slight dip the following year due to Covid before the FTSE 250 registered a 16.9% increase in 2021. Again, the FTSE 250 was the star of the show in 2021, hitting an all-time high of 24,354 on 7 September 2021.
The FTSE 100 hit an all-time high of 8014 on 20 February 2023 before falling back to circa 7200 due to economic concerns and rising interest rates. The FTSE 250 currently stands at around 18,000, a more significant fall from its all-time high but a massive outperformance over the years.
In the 1980s, some of the largest UK companies began to expand overseas, creating a marked difference between the FTSE 100, which now had significant international exposure, and the FTSE 250, more regional. Over the years, the FTSE 250 has significantly outperformed the FTSE 100, rising on average 10.6% a year since inception against just 7.2% for the FTSE 100. As an online trader, did that surprise you?
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