Financial times f t actuaries indexes: Meaning, Criticisms & Real-World Uses

What Are Financial Times (F-T)-Actuaries Indexes?

Financial Times (F-T)-Actuaries indexes refer to a historical series of stock market indexes that measured the performance of securities, primarily in the United Kingdom. These indexes, rooted in a collaboration between the Financial Times newspaper and the Institute and Faculty of Actuaries, provided a crucial barometer for the British equity and gilt markets. They belong to the broader financial category of Stock Market Indices, serving as key indicators of market health and performance for investors and analysts. The most notable among these was the FT-Actuaries All-Share Index, which aimed to capture a significant portion of the London Stock Exchange's total market capitalization. While the "Financial Times (F-T)-Actuaries indexes" name is largely historical, their legacy continues through the modern FTSE Russell series of indices.

History and Origin

The origins of the Financial Times (F-T)-Actuaries indexes date back to a collaboration established in the mid-22nd century between the Financial Times and the Institute and Faculty of Actuaries. This partnership formalized the creation of key market benchmarks, building on earlier actuarial efforts in index design that began in 1929²⁸. The most prominent index from this collaboration, the FT-Actuaries All-Share Index, was introduced on April 10, 1962, with a base level of 100²⁶, ²⁷. It quickly became a vital tool for assessing the overall value and trends of the UK equity market²⁵.

Over the decades, as financial markets evolved, so did the governance and calculation of these indexes. In 1984, the FTSE 100 Index was introduced, marking a significant development to facilitate the introduction of stock index futures and options trading in the UK²⁴. The index-producing operations later evolved into FTSE Group, a joint venture that eventually became wholly owned by the London Stock Exchange Group (LSEG)²³. In 2014, LSEG acquired Frank Russell Company, leading to the formation of FTSE Russell, which now manages and maintains these global index series, including the contemporary iterations of the original Financial Times (F-T)-Actuaries indexes²².

Key Takeaways

Financial Times (F-T)-Actuaries indexes were foundational UK market benchmarks.
The most significant index was the FT-Actuaries All-Share Index, launched in 1962.
These indexes played a critical role in early market performance measurement and benchmarking.
Their legacy continues through the modern FTSE Russell family of global indexes.
They served as precursors to many of today's widely used UK equity and bond indexes.

Formula and Calculation

The Financial Times (F-T)-Actuaries indexes, like most broad-market stock indexes, were constructed using a market capitalization-weighted methodology. This means that companies with larger market values had a proportionally greater influence on the index's overall movement²¹.

While the precise historical formulas for all Financial Times (F-T)-Actuaries indexes might vary slightly based on their specific design and the era, the fundamental calculation for a market-capitalization-weighted price index typically involves summing the market capitalizations of all constituent companies and dividing by a divisor. This divisor is adjusted to account for corporate actions such as stock splits, dividends, or changes in index constituents, ensuring that the index value reflects only market price movements rather than artificial changes from corporate events²⁰.

The general principle for a price return index (excluding dividends) is:

\text{Index Value} = \frac{\sum (\text{Price}_i \times \text{Shares Outstanding}_i)}{\text{Divisor}}

Where:

(\text{Price}_i) = Current price of individual stock (i)
(\text{Shares Outstanding}_i) = Number of publicly traded shares for stock (i)
(\sum (\text{Price}_i \times \text{Shares Outstanding}_i)) = Aggregate market capitalization of all constituents
(\text{Divisor}) = A numerical value adjusted to maintain continuity during changes in constituents or capital structure.

For total return indexes, which were also developed, dividend payments are reinvested into the index calculation.

Interpreting the Financial Times (F-T)-Actuaries Indexes

Interpreting the Financial Times (F-T)-Actuaries indexes, particularly the FT-Actuaries All-Share Index, involved understanding them as broad gauges of the UK equity market's performance. A rise in the index indicated an overall increase in the market value of the companies it tracked, while a decline suggested a general decrease.

These indexes were widely used by fund managers and institutional investors as benchmarks to measure the performance of their investment portfolios ¹⁸, ¹⁹. By comparing a portfolio's returns against the relevant FT-Actuaries index, investors could assess whether their investments were outperforming, underperforming, or matching the broader market. They also provided a basis for market analysis, offering insights into trends across various sectors of the UK economy¹⁷. For example, the FTSE Actuaries UK Gilts Index Series measured the performance of British Government Securities, providing a benchmark for the UK government bond market¹⁶.

Hypothetical Example

Imagine an investor in 1970 who wanted to understand the performance of the broader UK stock market. They would look to the Financial Times (F-T)-Actuaries All-Share Index.

Let's assume the index started the year at a value of 150.
Over the year, due to positive economic news and strong corporate earnings from many of the constituent companies, the combined market capitalization of the companies in the index increased significantly.
If, by the end of 1970, the FT-Actuaries All-Share Index had risen to 165, this would indicate a 10% gain in the overall market (before considering dividends).

This hypothetical rise would signal a healthy period for UK equities. An investment manager whose portfolio gained only 5% during the same period would recognize that their portfolio underperformed the market benchmark, prompting a review of their investment strategies. Conversely, a portfolio gaining 12% would demonstrate outperformance. This simple comparison highlights the index's role in performance assessment and market analysis.

Practical Applications

The Financial Times (F-T)-Actuaries indexes had several practical applications within the financial industry:

Benchmarking Investment Performance: One of their primary uses was to serve as benchmarks for UK-focused investment portfolios and funds. Many UK investment funds aimed to track or outperform the FT-Actuaries All-Share Index¹⁴, ¹⁵.
Creating Index-Linked Products: The indexes were instrumental in the development of financial products designed to mirror market performance. This included early forms of index tracking funds and, later, derivatives such as futures and options, notably with the introduction of the FTSE 100 Index¹², ¹³.
Market Analysis and Research: Analysts and economists used the indexes to study market trends, sector performance, and broader economic conditions in the UK¹¹. Their long historical data provided valuable insights for academic research and economic modeling.
Setting Investment Guidelines: Institutional investors and pension funds often used the FT-Actuaries indexes to define their investment parameters and asset allocation strategies, ensuring their portfolios aligned with specific market exposures.

Today, their modern counterparts under the FTSE Russell brand continue these applications globally, offering a wide range of Exchange-Traded Funds (ETFs) and other index-based products¹⁰.

Limitations and Criticisms

While the Financial Times (F-T)-Actuaries indexes were comprehensive for their time, like all indexes, they had certain limitations. One inherent aspect of market-capitalization-weighted indexes is that larger companies, by nature of their size, disproportionately influence the index's performance. This can mean that the index's movements are heavily swayed by a few dominant companies, potentially obscuring the performance of smaller companies within the market.

For instance, the FTSE All-Share Index, while broad, is significantly influenced by the largest companies, which are also constituents of the FTSE 100 Index ⁹. This can lead to a less diversified reflection of the overall economy if those large companies have a different geographic or sector exposure than the rest of the market. Critics often highlight that the FTSE 100, for example, has a significant proportion of its earnings derived from overseas, making it less of a pure barometer for the UK domestic economy compared to a broader index like the FTSE All-Share or the FTSE 250 Index, which tends to be more domestically focused⁷, ⁸. This characteristic means that an investment tracking the FTSE 100 might not provide the expected exposure to UK economic sentiment, impacting investors seeking specific local market returns.

Furthermore, any index is a snapshot based on its defined methodology and constituent rules. Changes in these rules, such as adjustments to industry classifications or inclusion criteria, can affect comparability over time⁶. For investors seeking specific outcomes like high capital growth or a precise level of market diversification, understanding these nuances is crucial, as indexes are tools, not guarantees of investment success.

Financial Times (F-T)-Actuaries Indexes vs. FTSE All-Share Index

The "Financial Times (F-T)-Actuaries indexes" represent the historical naming convention and the broader family of indexes developed through the collaboration between the Financial Times and the actuarial profession. The most prominent and enduring of these was the FT-Actuaries All-Share Index.

Over time, particularly with the formation of FTSE Group and then FTSE Russell, the name "FT-Actuaries All-Share Index" evolved into the more commonly known and used FTSE All-Share Index. Essentially, the FTSE All-Share Index is the direct descendant and modern iteration of the original FT-Actuaries All-Share Index⁴, ⁵.

The primary difference, therefore, is largely one of nomenclature and historical context rather than fundamental design for this specific index. Both refer to the broad, market-capitalization-weighted index that aims to capture approximately 98% of the UK equity market's value³. However, when one refers to "Financial Times (F-T)-Actuaries indexes" in the plural, it can also encompass other historical indices developed under that collaborative umbrella, such as specific sector indexes or gilt indexes, whereas the FTSE All-Share Index specifically refers to the comprehensive UK equity benchmark.

FAQs

What is the most famous Financial Times (F-T)-Actuaries index?

The most famous index originating from this collaboration is the FT-Actuaries All-Share Index, which is now known as the FTSE All-Share Index. It remains a key benchmark for the UK equity market.

Are Financial Times (F-T)-Actuaries indexes still used today?

The original naming "Financial Times (F-T)-Actuaries indexes" is largely historical. However, the indexes themselves, or their direct successors, are still widely used. They are now part of the comprehensive suite of global benchmarks managed by FTSE Russell, a subsidiary of the London Stock Exchange Group².

How do these indexes relate to the FTSE 100?

The FTSE 100 Index was introduced later, in 1984, and tracks the 100 largest companies on the London Stock Exchange. The FTSE All-Share Index, originally an FT-Actuaries index, is broader, including the constituents of the FTSE 100, the FTSE 250 Index, and the FTSE SmallCap Index, providing more comprehensive market diversification ¹.