FTSE 250
FTSE 250 is a stock market index that represents the performance of 250 companies listed on the London Stock Exchange (LSE) that rank immediately below the constituents of the FTSE 100 by market capitalization, subject to the index's eligibility and classification rules.
The FTSE 250 is widely regarded as a benchmark for the performance of medium-sized companies in the United Kingdom. It is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG).
Composition
The FTSE 250 consists of 250 companies selected according to the rules of the FTSE UK Index Series.
Companies are ranked according to their market capitalization, subject to the index's eligibility criteria, investability requirements, and periodic reviews.
The index generally represents companies positioned between the largest companies in the FTSE 100 and smaller companies represented in indices such as the FTSE SmallCap.
Market capitalization
Market capitalization is commonly calculated as:
For index purposes, FTSE Russell applies additional rules and adjustments when determining a company's eligibility and weighting.
Index weighting
The FTSE 250 is generally weighted according to the market capitalization of its constituents, subject to applicable free-float and index methodology adjustments.
A simplified representation of a constituent's index weight is:
The actual calculation incorporates the methodology used by FTSE Russell, including free-float adjustments and other index factors.
Free float
Free float refers broadly to the proportion of a company's shares that are considered available for public investment.
Shares subject to strategic or restricted holdings may be excluded or treated differently when calculating an index constituent's investable market capitalization.
This helps make the index more representative of shares available to market participants.
Index reviews
The composition of the FTSE 250 is reviewed periodically according to the rules of the FTSE UK Index Series.
Companies can enter or leave the index as their relative market capitalization and eligibility change.
Corporate actions and other events can also result in changes to index constituents or their weights.
FTSE 100 and FTSE 250
The FTSE 100 and FTSE 250 are major indices within the FTSE UK Index Series.
The FTSE 100 primarily represents the largest eligible companies listed on the London Stock Exchange, while the FTSE 250 represents the next segment of companies by market capitalization.
A simplified representation of the relationship is:
The FTSE 350 combines the constituents of the FTSE 100 and FTSE 250, subject to the applicable index methodology.
FTSE 350
The FTSE 350 is an index comprising the constituents of the FTSE 100 and FTSE 250.
It provides broader exposure to large and medium-sized companies listed in the United Kingdom than either index individually.
FTSE SmallCap
The FTSE SmallCap index represents smaller eligible companies below the FTSE 350, subject to the relevant index rules.
The FTSE 250 is therefore generally positioned between the FTSE 100 and FTSE SmallCap in the FTSE UK equity-index structure.
Economic significance
The FTSE 250 is frequently used as an indicator of the performance of medium-sized UK-listed companies.
Because its constituents generally have greater exposure to the UK economy than many FTSE 100 companies, movements in the FTSE 250 can be used by investors and analysts when assessing aspects of the domestic UK equity market.
However, the index should not be interpreted as a direct measure of the entire UK economy because its constituents operate across different industries and geographic markets.
Investment products
Financial products can be designed to track the performance of the FTSE 250.
These may include:
- exchange-traded funds (ETFs);
- index funds;
- derivatives;
- structured investment products.
Such products can provide investors with exposure to a broad group of medium-sized UK-listed companies rather than requiring the purchase of individual constituent shares.
FTSE 250 and passive investment
The FTSE 250 can serve as a benchmark for investment portfolios focused on medium-sized UK companies.
A passive investment strategy may seek to replicate the performance of the index by holding its constituents according to their respective index weights or through an investment product that tracks the index.
The performance of a tracking product can differ from the index because of fees, taxes, transaction costs, cash holdings, and tracking error.
Performance measurement
The return of the FTSE 250 can be measured using different index variants.
A price index reflects changes in constituent share prices, while a total-return index can incorporate the reinvestment of dividends according to the applicable methodology.
A simplified total-return relationship is:
The precise calculation depends on the index variant being considered.
Importance
The FTSE 250 is an important benchmark for the United Kingdom's mid-cap equity market. It provides investors, fund managers, and analysts with a standardized measure of the performance of a broad group of medium-sized companies listed on the London Stock Exchange. It is also used as an underlying reference for investment products and financial analysis.