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FT30 index

The FT30 index is based on the share prices of 30 British companies from a wide range of industry. The index, which began on July 1 1935, is the oldest continuous index in the UK and one of the oldest in the world.

History

The index was designed to “test the feel and changing moods of the equity market” as reflected in prices of the leading and most actively traded shares. The number of quoted shares was growing rapidly at the time as the number of manufacturing and distribution companies quoted in London more than doubled to 1700 between 1924 and the late 1930s. The index was started by the “Financial News”, one of the modern FT’s parents. It was the barometer of investor sentiment in the City of London until the FT Actuaries series was launched in 1962 and the FTSE 100 in 1984. It was originally called the FN (then the FT) Ordinary index.

The name FT30, as opposed to FTSE30, denotes a difference from the FTSE suite of indices. The Editor of the FT, along with the Financial and Statistics Editors, is the guardian of the index and responsible for changes in constituents. FTSE indices in contrast are governed by the FTSE committee system.

The method of calculation is essentially unchanged since its inception and is different from most other indices such as those produced by FTSE. First, the equal weighting for the 30 constituents is in contrast to the FTSE methodology which has weights based on market capitalisations. Second, constituents only change when a company needs to be removed for some reason, such as merger or failure. The FTSE 100 contains the largest 100 companies as determined by market capitalisation. The FT30 offers stability relative to the FTSE 100, which can see as many as 10 companies arrive or leave every quarter.

The number of constituents was confined to 30 to produce a sensitive index. The number is generally large enough to absorb any abnormal price movement in an individual share, while the addition of more stocks to smooth out exceptional fluctuations would deprive it of some of its sensitivity. The calculation of the index - by hand every hour and ‘published’ within 10 to 15 minutes - in the pre-computer era in which it was launched, also placed a limit on its size.

When companies are removed from the index the overriding considerations in choosing a replacement constituent are that: the constituent reflects the breadth of the UK economy, the shares are actively traded and are not in the hands of small number of holders, the company is a leader in its field but UK-based or have UK origins, and (traditionally, though less relevant now) the shares trade without any undue influence on the price from overseas. Recent entrants have often been the largest company in a sector which has either just lost a constituent or was not represented by existing constituents. Company size is not of paramount importance for inclusion in the FT30, but all recent additions have been in the FTSE 100 at the time of entering the index.

Since the index was started there has been a steady shift of emphasis in its make-up from heavy industry towards companies engaged in the service trades, reflecting changes in the economy. Textile companies were well represented in the original index but disappeared as a result of the industry’s long-term decline. Coalmines departed under nationalisation. Oil shares gained representation in the index for the first time in March 1977, with the inclusion of British Petroleum, and in December 1984 National Westminster Bank became the first entry from the financial sector. BT (British Telecommunications) and BG (British Gas) were added after privatisation. Only two original constituents - GKN (Guest Keen & Nettlefolds), and Tate & Lyle - remain in the index.

Original constituents:

A selection of major changes to the FT30 index

Calculation:

The index is calculated by an adjustment based method using the price movements since the previous day’s closing index to generate movement in the form:

T_Ind = Y_Ind x 30√( tod_1/yes_1 x tod_2/yes_2 x ....... x tod_30/yes_30 )

where:

Further information:

reader.enquiries@ft.com

or

Reuters - the helpdesk on 0800 442 000 - for index calculation issues.

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