n00b question about funds

jimjames

Loughton_Monkey wrote: »

It doesn't, I think, take away from the thrust of my comment.

Absolutely it doesn't affect the thrust of what you were saying. What really surprised me though when I looked into it was the huge difference between weightings and the impact that has on the index.

In practice what it means is that if there is a company like HSBC that has 8% weighting in the index then others must have substantially lower than 1%.

So lets assume ABC plc has a 0.8% weighting in the index then that means that to have the same impact on the FTSE100 index as a 1% rise in HSBC then its shares would have to rise 10%. That is a pretty massive difference in performance that is needed to give the same outcome.

Loughton_Monkey

jimjames wrote: »

So lets assume ABC plc has a 0.8% weighting in the index then that means that to have the same impact on the FTSE100 index as a 1% rise in HSBC then its shares would have to rise 10%. That is a pretty massive difference in performance that is needed to give the same outcome.

It does, indeed, say a lot perhaps about a distorted or unbalanced economy. Be that as it may. But it is 'correct' to weight it by size I think. The FTSE 'All Share' is obviously weighted just the same - which means that if miniscule XYZ plc's share price trebled every day for a week, it would probably not come anywhere near to affecting the index.

I was also a bit staggered to learn that while FTSE 100 is (very broadly) at the same level as the start of the century, nearly 12 years ago, the FTSE 250 has in fact climbed around 80% over the same period. Would be interesting to see if dividend income would narrow - or widen - the gap.