The FTSE 350 is a lesser popular stock market index among British investors. It combines the FTSE 100 and FTSE 250 indices, granting exposure to large-cap, mid-cap, and small-cap stocks. The index is similarly market capitalisation-weighted and contains the 350th largest businesses listed on the London Stock Exchange.

The FTSE 350 was first launched in December 1983, making it older than both the FTSE 100 and FTSE 250. Today the index is maintained by the FTSE Russell Group – a subsidiary of the London Stock Exchange Group.

How does the FTSE 350 work?

The FTSE 350 contains 350 stocks selected based on their market cap. As of December 2022, the index’s total market value stood at just over £2.24trn. Compared to the approximate £3.78trn market cap of all publically listed companies on the London Stock Exchange, this means the FTSE 350 represents roughly 60% of the UK stock market.

For a company to join the FTSE 350 index, it needs to have at least the 350th largest market capitalisation in the United Kingdom. This is also the minimum threshold for a stock to enter the FTSE 250. Note that a stock can belong to multiple FTSE indices simultaneously.

Like other FTSE indices, the FTSE 350 is rebalanced every quarter in March, June, September, and December. If a business no longer meets the market cap requirements, it will be removed from the index at these intervals. Similarly, if a firm has grown sufficiently, it will be added to the index at these intervals, kicking out an existing constituent at the bottom of the list.

Being a capitalisation-weighted index also means that the stocks with the largest market cap have the most influence over the index’s level.

As of December 2022, the ten largest UK stocks within the FTSE 350 index are:

1. AstraZeneca (LSE:AZN)
2. Shell (LSE:SHEL)
3. Unilever (LSE:ULVR)
4. HSBC Holdings (LSE:HSBA)
5. Diageo (LSE:DGE)
6. BP (LSE:BP)
7. British American Tobacco (LSE:BATS)
8. Rio Tinto (LSE:RIO)
9. Glencore (LSE:GLEN)
10. GlaxoSmithKline (LSE:GSK)

What is the average return on FTSE 350?

Despite granting investors exposure to a broad range of small- and mid-cap stocks, the total performance of the FTSE 350 is closely aligned with the FTSE 100 index rather than the FTSE 250. This all boils down to the capitalisation-weighting used to determine the level of influence of each company within the index. As large-cap stocks are the largest, they have the most influence over the FTSE 350’s performance.

Since July 1994, the FTSE 350 has delivered an average total annual return of approximately 7.9%. That’s just ahead of the FTSE 100’s 7.2% but behind the FTSE 250’s 10.6% historical averages.

The slightly elevated return does come with the caveat of increased volatility. But it’s less extreme compared to the FTSE 250. As such, it could be an ideal index to track using an exchange-traded fund for a conservative investor seeking slightly higher returns without taking on too much additional risk.

FTSE 350 vs other indices

As previously mentioned, the FTSE 350 isn’t the only stock market index used by British investors. Other more popular indices include the FTSE 100, FTSE 250, and FTSE AIM 100.

FTSE 350 vs FTSE 100

The FTSE 100 index was launched in January 1984 and contains the largest 100 publically traded stocks on the London Stock Exchange by market cap. It is also rebalanced on the same quarterly schedule as the FTSE 350 and is similarly weighted based on the market capitalisation of its constituent shares.

The returns generated by the FTSE 100 have been slightly less impressive. However, the larger size of its constituents provides far more defence against market volatility. Furthermore, as most of the businesses within the index are mature, the majority pay a handsome dividend, more so than the companies inside the FTSE 350.

FTSE 350 vs FTSE 250

The FTSE 250 was launched on 12 October 1992. Like the FTSE 350, it’s also a market capitalisation-weighted index. And consists of the 101st to 350th largest companies listed on the London Stock Exchange.

The constituents are also added or removed every quarter. However, due to the smaller size, most companies within the FTSE 250 are either mid-cap or small-cap shares. Consequently, the index has historically been significantly more volatile than the UK’s flagship stock index.

Despite the increased index volatility, patient investors have been rewarded with superior returns versus the FTSE 100. Between October 1992 and August 2017, the FTSE 250 delivered a total return of 1,637% – or 11.8% annually.

FTSE 350 vs FTSE AIM 100

The FTSE AIM 100 is another market cap-weighted stock index. It was launched on 16 May 2005 and contains the largest 100 stocks listed on the Alternative Investment Market (AIM). AIM is a subsection of the London Stock Exchange. And it’s home to typically tiny businesses that are too small to be listed on the main exchange.

As such, even though the index contains the most prominent companies listed on AIM, these are still small-cap stocks. And several firms venture into micro-cap and penny stock territory.

FTSE 350 index sector weightings

Companies within the FTSE 350 cover a broad range of industries. And the subsequent weighting of each share within each sector makes the index fairly diversified. As such, some traders prefer it to track the state of the UK economy versus the FTSE 100. Why? Because the FTSE 350 contains large-cap, mid-cap, and small-cap stocks covering a broader range of business sizes.

List of all FTSE 350 companies

Is FTSE 350 a good investment?

As previously mentioned, the FTSE 350 index comprises constituents of FTSE 100 and FTSE 250. Investing in this index exposes an investor to the stability of the stocks of  FTSE 100 and the potential growth and volatility of  FTSE 250. This brings a balance in the risk and reward in an investment portfolio. It’s also worth pointing out that the weightings of different industries are more equally distributed than in the FTSE 250, which is mainly concentrated in the Financials sector.

Of course, the added growth potential does come with additional volatility due to the exposure to mid- and small-cap stocks. Therefore, tracking the performance of the FTSE 350 with an index fund may not be suitable. It all depends on an investor’s investment objective, risk tolerance, and time horizon.

The bottom line

The FTSE 350 isn’t the most widely followed stock market index in the United Kingdom. But it does serve as a potentially more accurate proxy for tracking the performance of the British economy. For investors seeking further growth without taking on too much additional risk, the FTSE 350 may be an ideal match.

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This article contains general educational information only. It does not take into account the personal financial situation of the reader. Tax treatment is dependent on individual circumstances that may change in the future, and this article does not constitute any form of tax advice. Before committing to any investment decision, an investor must consider their individual financial circumstances and reach out to an independent financial advisor if necessary.

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