The FTSE 100 is the UK’s main stock market index. Made up of the largest 100 companies on the London Stock Exchange, it includes well-known UK shares such as AstraZeneca, Unilever, BP, and HSBC Holdings.
We can’t invest directly in the FTSE 100. That’s because it’s simply an index. However, there are a number of ways to get portfolio exposure to it. Here’s a look at three straightforward ways to invest in the Footsie.
FTSE 100 ETFs
One of the easiest ways is through exchange-traded funds (ETFs). These are securities that track the movements of an index, sector, or asset. For example, if the FTSE 100 goes up 5%, a FTSE 100 ETF will go up 5% too. ETFs trade on the stock market just like regular shares, so they’re easy to buy. However, an account with a broker is needed to invest in one.
There are a number of ETFs that track the performance of the FTSE 100, including:
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The iShares Core FTSE 100 UCITS ETF (ticker: CUKX)
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The HSBC FTSE 100 UCITS ETF (ticker: HUKX)
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The Vanguard FTSE 100 UCITS ETF (ticker: VUKE)
One advantage of investing in these kinds of ETFs is that ongoing fees are very low. The HSBC FTSE 100 UCITS ETF, for example, has an ongoing fee of just 0.07% per year. On the downside, most brokers charge trading commissions to buy and sell ETFs.
Footsie index funds
Another way to invest in the FTSE 100 is through index funds. These are quite similar to ETFs in that they track the movements of indexes. However, they’re not traded on the stock market like ETFs are, which means the process of buying and selling them is a little different.
Some popular FTSE 100 index funds include:
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The iShares 100 UK Equity Index
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The HSBC FTSE 100 Index
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The Legal & General UK 100 Index Trust
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The Vanguard FTSE 100 Index
One thing to note about index funds is that overall fees are often higher than the fees for ETFs. This is due to the fact that many brokers charge higher custody fees for accounts with funds (ETFs are considered to be shares).
Invest in the FTSE 100 by buying shares
Finally, a third way to invest in the FTSE 100 is to buy individual Footsie shares, such as Unilever, Diageo, and Rightmove.Â
Buying individual FTSE 100 stocks is a riskier approach than buying an ETF or index fund because it increases stock-specific risk. This approach is also harder work. It takes time and effort to research the best stocks to buy.
However, there are two main benefits of this approach. Firstly, investors have more flexibility in terms of portfolio construction. Don’t want to invest in oil stocks or tobacco stocks? No problem. Simply avoid stocks like Royal Dutch Shell, BP, British American Tobacco, and Imperial Brands.
Secondly, investors can potentially outperform the index itself. Pick the right FTSE 100 shares and it’s possible to generate market-beating returns.