How to invest in the FTSE 100

What is the FTSE 100?

The Financial Times Stock Exchange 100 (FTSE 100), informally known as the Footsie, is a stock market index that tracks the 100 largest companies on the London Stock Exchange. It was created in 1984 and is maintained by the FTSE Group, a data services firm also responsible for the FTSE 250, the FTSE 350 and the FTSE All-Share. Big names in the FTSE 100 include Barclays, Carnival, Experian, HSBC, Rolls Royce, Tesco and Unilever.

Can I invest in the FTSE 100 from the US?

Yes, there are several ways to invest in the FTSE 100 from the US:

• Stocks
• Exchange-traded funds (ETFs)
• American depository receipts (ADRs)

To trade stocks and ETFs, you’ll need a brokerage account that allows you to buy and sell international securities.

If you want to stick with a domestic trading platform, your FTSE 100 investment options are limited to ADRs: shares of large British companies traded on the New York Stock Exchange, American Stock Exchange and the Nasdaq. ADRs are held by US banks and are priced and pay dividends in USD.

How to invest in the FTSE 100

While you can’t invest directly into the FTSE 100, you can invest in the companies it tracks by purchasing individual stocks or index-tracking ETFs. If you’d like to pick and choose which companies you support, explore stock investment opportunities. If you’d prefer to gain exposure to everything the FTSE 100 tracks, invest in an exchange-traded fund.

Before you can start investing, you’ll need a brokerage account. Here’s a quick snapshot of the process:

1. Open a brokerage account. If you plan to invest in global indexes like the FTSE 100, you’ll need an international trading account. Sign up with a broker that offers access to global exchanges, like Fidelity Investments or Zacks Trade.
2. Fund your account. Before you can begin purchasing securities, you’ll need to fund your brokerage account with an external transfer.
3. Search for securities. In-platform research and analytics tools can help you narrow down your trading options by industry, sector, market and more.
4. Place an order. Once you’ve narrowed down your options, indicate how many stocks or ETFs you’d like to purchase and submit your order.
5. Track your investments. Log in to your brokerage account to monitor your investments.

Compare domestic trading platforms

You don’t necessarily need an international brokerage account to invest in the FTSE 100. Domestic platforms can be used to buy ADRs.

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FTSE 100 ticker

Use the chart below to track the performance of the FTSE 100.

How do FTSE 100 ETFs work?

When you buy an FTSE 100 ETF, you’re not investing directly in the companies in the index. Most FTSE 100 ETFs will hold shares in the companies in the index, but you won’t have a share by just buying the ETF.

However, the ETFs performance will track closely with the performance of the stocks in the index. For example, if the FTSE 100 increases in value by 2%, your ETF should also increase close to 2%.

To invest in an ETF, you’ll generally need to pay a fee of 0.07% to 2.5% each year, as well as any trading commissions the broker charges.

Types of ETFs

As of June 2020, no ETFs on US exchanges track the full FTSE 100. This means you’ll need an international brokerage account to purchase FTSE 100-tracking ETFs from UK markets.

Most FTSE 100 ETFs are weighted in favor of companies with higher market capitalization. However, there are some ETFs such as the db X-Trackers FTSE 100 Equal Weight UCITS ETF (XFEW) which invests in the companies in the index equally. This means the performance of smaller companies will have a larger impact on the ETF, relative to their size.

• Short ETFs. Bet against the performance of the index. If the FTSE 100 goes down, the value of a short ETF should go up.
• Leveraged ETFs. Multiply the gains and losses of the index, meaning you’ll get a higher or lower return relative to the size of your investment. You’re effectively borrowing extra capital to potentially increase your returns. For example, if you invest $1,000 in an FTSE 100 ETF with 10x leverage and it goes up 5%, you’d make $500 instead of $50. However, the same would apply to losses.

What ETFs track the FTSE 100?

Popular ETFs that track the FTSE 100 include:

What stocks are in the FTSE 100?

Here’s a list of every tradable stock on the FTSE along with its ticker symbol and the industry it belongs to.

Why should I invest in the FTSE 100?

One of the primary reasons investors branch out into foreign markets is to diversify their portfolio. And the FTSE 100 is well-positioned to offer investors a comprehensive slice of the UK market — especially for those purchasing index funds. This balanced and comprehensive index can help investors broaden their reach with international assets from established companies on a reputable exchange.

What are the risks of investing in the FTSE 100?

No index is immune to risk or volatility. If the companies the FTSE 100 tracks do well, your investments will thrive. But if the market goes downhill, so will your investments.

Because stocks and ETFs that track the FTSE 100 aren’t traded on US markets, investors must contend with market-rate conversions and currency transactions — a potentially confusing undertaking for newbies.

Some investment experts also argue that the FTSE 100 only represents part of the British economy, and is heavily dominated by international oil and mining companies. Investors keen to get their hands on UK securities may be disappointed to learn that some of the companies the FTSE 100 tracks aren’t predominantly British.

Bottom line

The FTSE 100 offers US investors the opportunity to broaden their portfolios but it isn’t without drawbacks. But an international trading account is required for most transactions and the FTSE 100’s performance is skewed by the high percentage of oil and mining companies it tracks.

Review your trading account options on different platforms to find the brokerage best suited to your investment needs.