In this article, we break down what the FTSE 100 is, how it works, and what it can and cannot tell you about the UK stock market.
But how do you invest in the FTSE 100? Whether you’re looking to get started or want to diversify your portfolio, here’s how to access the index using low-cost ETFs, and how to do it tax efficiently with InvestEngine.
What is the FTSE 100?
The FTSE 100 (often pronounced “footsie”) tracks the share prices of the 100 largest companies listed on the London Stock Exchange. These are the UK’s most established businesses, covering a wide mix of sectors.
You’ll find familiar names like:
- HSBC and Barclays in banking
- Shell and BP in energy
- AstraZeneca and GSK in healthcare
- Tesco, Unilever and Diageo in retail and consumer goods
The index is updated quarterly, with companies added or removed based on market value. Because of its size and diversity, the FTSE 100 is often used as a key indicator of the health of the UK economy.
What impacts the FTSE 100’s performance?
The FTSE 100 is made up of the 100 biggest UK-listed companies by market capitalisation (this is the share price multiplied by the number of shares). However, it’s best known for its international nature as lots of the companies make money outside the UK.
Industry titans such as AstraZeneca, HSBC, Shell, Unilever, BP and Barclays dominate the index, with financials and oil & gas together accounting for around 27% of the FTSE 100. Crucially, close to three-quarters of FTSE 100’s revenues are generated overseas.
As a result, the FTSE 100’s performance is driven less by the state of the UK economy and more by two key factors: the global macroeconomic environment and the value of the pound.
Global growth dynamics play a significant role. Slowing demand or weaker industrial activity can weigh on commodity prices, pressuring earnings in energy and mining.
At the same time, shifts in monetary policy matter. A cycle of global rate cuts typically supports stock market valuations, but it can also make it harder for banks to make money through lower net interest margins.
Geopolitical developments add another layer, as heightened uncertainty has supported defence stocks and safe-haven assets, benefiting names like BAE Systems while reinforcing the FTSE’s defensive characteristics.
Currency movements are equally important. With much of the index’s income generated in US dollars, a weaker pound boosts reported earnings when overseas revenues are translated back into sterling.
At the same time, a stronger GBP acts as a headwind to profits. As such, how well sterling is doing can materially influence the FTSE 100’s returns, sometimes no matter how well the companies are doing.
FTSE 100 outlook: what’s next for the UK stock market?
Looking ahead to 2026, the outlook is shaped by ongoing geopolitical tensions and a global economy that remains fragile but stabilising.
Two themes stand out: resilient corporate earnings and a more accommodative Bank of England.
Despite sluggish growth and previously restrictive financial conditions, many FTSE 100 constituents have still been making profit. Strict cost controls, productivity improvements and geographic diversification have allowed earnings growth to outpace revenue growth in several sectors.
In particular, energy and mining companies continue to benefit from generating lots of cash and being disciplined on where it invests its money, reinforcing the index’s income and defensive appeal.
Monetary policy is also becoming more supportive. With inflation easing, the Bank of England has already started cutting rates, reducing them to 3.75% in December.
Further easing in 2026 could improve financial conditions, support stock market valuations, and benefit sectors that are more sensitive to rates, like banks and housebuilders, even if pressures on profit margins persist.
Finally, the FTSE 100 continues to trade at a more attractive valuation and notable discount to global peers like the S&P 500..
However, this discount may overstate the risks given the strength of balance sheets, dividend sustainability and the improving macroeconomic backdrop.
In 2026, the FTSE 100 may not offer high-growth excitement, but its global exposure, currency sensitivity and resilient earnings suggest it remains well positioned in a more uncertain world.
Source: Bloomberg, FTSE 100 total return in GBP, 31/12/2024 to 31/12/2025
How to invest in the FTSE 100
You can’t invest directly into the indexes. You can, however, invest into an index fund or exchange-traded fund (ETF) that tracks the index.
1. Choose a FTSE 100 ETF
The simplest way to invest in the index is through an Exchange-Traded Fund (ETF) that tracks the FTSE 100.
These funds are ‘baskets’ which hold the companies that make up the index they’re tracking. As such, these funds aim to replicate the performance of the index, at a lower cost than that of active management.
Some options include:
The specific constitution of the different ETFs that track the index vary slightly. These are also by no means the only ETFs that track the UK market, so do a little research before making any investment decisions.
All of these are available on the InvestEngine platform and come with low annual charges (typically between 0.07% and 0.10%).
2. Pick your investment account
Choosing your account type is an important decision for anyone looking to invest. Depending on your goals, you can hold your ETF in:
- A Stocks and Shares ISA – Invest up to £20,000 per tax year with no tax on gains or income.
- A SIPP (Self-Invested Personal Pension) – Get tax relief on contributions up to £60,000 a year, and grow your pot tax-free until retirement.
- A GIA (General Investment Account) – Flexible, with no limits, though gains and dividends may be taxed above your allowances. Ideal for anyone who has maxed out their ISA allowance already.
Want to invest through your company? Our Business Account also supports ETFs that track all the major markets.
We compare ISAs and SIPPs in this article. They do different things but, for a lot of investors, one or both will be sufficient.
Investing through a tax wrapper like an ISA or SIPP can help you keep more of your returns.
3. Decide how and when to invest
How you invest is up to you and will depend on your goals and your financial situation. You can:
- Invest a lump sum – useful if you’ve saved up or received a windfall.
- Set up regular contributions using an InvestEngine Savings Plan
Savings Plans automate weekly, fortnightly or monthly payments from as little as £20. So, you can set up your regular investments then sit back and relax as your portfolio ticks over.
Why invest in the FTSE 100?
There are several reasons UK investors turn to the FTSE 100:
- Diversification. The FTSE 100 is well-diversified within the UK market, featuring a range of sectors.
- Exposure. Investing in the FTSE 100 can give you access to well-established companies with global reach.
- Relative stability. Because the FTSE 100 features the UK’s most established companies, they’re relatively stable.
- Easy to invest in. You can invest in the via low-cost index-tracking ETFs with ease.
- A useful foundation. FTSE 100 ETFs can be an important part of a balanced, long-term portfolio.
The UK market may not feature the glamour of the US tech companies like the S&P 500, but it can be an important part of a wider, diversified investment portfolio.
What to consider before investing
While the FTSE 100 can be a great starting point for UK investors, there are a few things to keep in mind:
Limited sector exposure
The FTSE 100 is heavy in certain areas — especially financials, energy, and consumer staples. It’s also lighter on technology. For a more balanced approach, investors may want to combine it with other global or thematic ETFs.
Overconcentration
Similarly, FTSE 100 ETFs are obviously limited to the UK. This means their performance is, often, intimately tied to the performance of the broader UK economy – it’s advisable, then, to spread your investments across countries.
Currency exposure
Although FTSE 100 companies are UK-listed, many earn revenue overseas. That means their performance is often influenced by the strength of the pound. A weaker pound can actually benefit FTSE 100 companies with global earnings.
Why use InvestEngine to invest in the FTSE 100?
At InvestEngine, we make it easy to invest in the FTSE 100, whether you’re new to investing or building a long-term strategy.
Here’s what you get:
- Commission-free investing – No trading or platform fees for DIY portfolios. ETF costs apply.
- Wide investment choice – Including a range of major ETFs and other popular indices
- Flexible accounts – ISA, SIPP, GIA, or Business Accounts for all your investing needs
- Regular investing tools – Set up automated contributions with Savings Plans
You can open an account in minutes and start building your UK investment portfolio today.
Final thoughts
ETFs are a simple, low-cost way to get exposure to the UK’s largest companies.
It offers broad exposure across sectors and industries, and can work well alongside global ETFs to create a diversified portfolio.
Whether you’re investing through an ISA or SIPP, it’s easy to get started with InvestEngine.
Important information
Capital at risk. The value of your investments may go down as well as up, and you may get back less than you invest.
Past performance is not a reliable indicator of future results. ETF costs apply.