Foster Denovo|News & blogs|Opinion|Market briefing – 1st February 2021

Market briefing – 1st February 2021

‘Covax’ update

UK trials of a new coronavirus vaccine by US company Novavax were shown to be 89.3% effective against the UK virus variant (1).

Should it be approved by the Medicines and Healthcare Products Regulatory Agency (MHRA), it will become the fourth vaccine approved for use in the UK. The vaccine will be made in Stockton-on-Tees, north-east England.

Focusing on medicines already approved for use, the UK and EU have appeared to avoid – at least for the time being – a serious vaccine dispute.

The EU had insisted that the AstraZeneca Covid-19 injections produced in Staffordshire and Oxfordshire were sent to Europe to assist in making up for deficits in the EU.

In response to this, AstraZeneca has insisted that their contracts made clear that the UK had prerogative on vaccines produced in the UK. They have promised to deliver doses to the EU as well, but have not committed to a specific timetable.

Executive orders – cutting the middleman out

A UK prime minister must get a majority of votes in the House of Commons to have any chance of passing a piece of legislation into law. A US President on the other hand can ‘cut out the middleman’ of Congress and make law by issuing what is known as an ‘executive order’ which is a directive from the president that has much of the same power as a US federal law. Under certain circumstances, the US Congress can pass a new law to override an executive order; which in itself could be subject to a presidential veto.

Recently inaugurated President Joe Biden has issued 24 executive orders(2) since taking office just over a week ago, overturning many of his predecessor’s executive orders. This may feel like ‘yo-yo’ politics – with its potential impact on financial markets – but is the use of the executive order a modern phenomenon, only highlighted through the lens of a deeply politically divided country?

Since the first US President George Washington took office in 1789, every president has used the executive order power in various ways. One of Washington’s first executive orders was to establish the US Thanksgiving holiday every November (3).


According to records at the US National Archives, 32nd President, Franklyn D Roosevelt (FDR), issued the most executive orders (3).

As the US dealt with the Great Depression and second world war, FDR issued 3,728 orders between 1933 and 1945, more than double the number of orders issued by any other president.

Second to FDR was 28th President Woodrow Wilson, another world war president. During his term of office between 1913 and 1921 he issued 1,803 orders(4), which was just under four-and-a-half executive orders per week whilst he was in office.


Since the second world war, 40th President Ronald Reagan issued the highest number of orders with 364(4) between 1981 and 1989.

In terms of the per week average however, his predecessor, 39th President Jimmy Carter, takes the prize. In his four-year term in office, he issued just over one-and-a-half executive orders per week between 1977 and 1981, with a total of 320(4).

Bringing us right up to date, by the time he left office at midday a week last Wednesday, 45th President Donald Trump, had issued a total of 220 executive orders(4) at just over 1 order per week since 2017.

Through the prism of the 24-hour news cycle it may seem that president Biden – and his immediate predecessor president Trump – have used executive orders excessively. When considered in the wider historical context however, especially against FDR and President Wilson, their use has been limited. Time, and the balance of power in Congress, will tell what type of President Joe Biden will be.

The impact on financial markets on the surface may appear to be significant, but in reality, irrespective of one’s political views, what markets dislike most is uncertainty and so markets will be generally unaffected. From a long-term investor’s standpoint however, where they are invested and via what style is more important.

Active or passive? Is this even the right question?

One of the main reasons given for investing in index – or passive – funds is that an investor can achieve the same performance as they would get from actively managed funds without having to pay higher management fees.

This debate will continue for as long as there are stock markets and so it is not our intention to end the debate here. Analysing the different investment styles of active management and index investing however can assist investors in coming to an informed view.

Whilst remembering that past performance is never a guide to future returns, reflecting on the past can assist in drawing some conclusions. Let’s consider and contrast two different geographical and philosophical areas, i.e. the very large growth orientated market that is the Investment Association’s (IA) North America sector and on the other extreme the relatively small value orientated market that is the IA UK Smaller Companies sector.

North America

Viewing North America via the IA North America sector – which measures the success of broadly active management in this sector against an iShares index tracker also focused on North America (in Sterling and net of fees for both active and passive investing), we may be able to draw out some investment principles.

Sources for graphs below FE Analytics(5)

IA North America v iShares MSCI North America – 1 year

IA North America v iShares MSCI North America – 3 years

IA North America v iShares MSCI North America – 5 years

IA North America v iShares MSCI North America – 10 years

In three of the four timeframes shown above, the longer time frames (3, 5 and 10 years), the iShares index fund, tracking the North America growth sector, outperformed the actively managed sector represented by the IA North America. This perhaps evidences that in such an efficient(6), widely researched and well-known market, active management outperformance over an index tracker is extremely difficult to achieve.

Only the shorter 1-year time frame – the period most greatly affected by the extreme volatility caused by the bear market last February and March – sees the actively managed sector marginally outperforming the index fund; perhaps an indication that some form of human intervention reduces losses in extreme volatility as opposed to a fund that tracks markets only.

It’s likely also that without fees, the index tracker would have been virtually identical to the IA sector.

By contrast …

UK Smaller Companies

Viewing the specialist, potentially boutique market that is UK Smaller Companies via the Investment Association’s (IA) UK Smaller Companies sector – which measures the success of active management in this sector – against an iShares index tracker also focused on UK Smaller Companies (in Sterling net of fees for both active and investing), as with the North America analysis, we may be able to draw out some investment principles.

IA UK Smaller Companies v iShares MSCI UK Small Cap – 1 year

IA UK Smaller Companies v iShares MSCI UK Small Cap – 3 years

IA UK Smaller Companies v iShares MSCI UK Small Cap – 5 years

IA UK Smaller Companies v iShares MSCI UK Small Cap – 10 years

In all of the four timeframes shown above (1, 3, 5 and 10 years), in contrast with the efficient market that is North America, the iShares index fund, tracking the more inefficient(7) UK Smaller Companies value sector, underperformed the actively managed sector represented by the IA UK Smaller Companies. This perhaps evidences that in such an inefficient, under researched sector, active management outperformance over an index tracker is an indication that human intervention via active management benefits investment returns rather than relying on a fund that tracks markets only.

What should this tell you?

Remembering that “past performance is no guide to future returns”, from an investment perspective, investors should have a balanced view towards investing styles and philosophies.

Investors’ focus should be on ‘smart diversification’. This should include investing across different asset types, such as bonds as well as equities and across geographical jurisdictions, so they are not confined to one or two countries or regions. It should also involve investing across investment styles, that should include active management and index/passive investing, and across different investment philosophies that includes growth and value.

It is also important to remember that it is often the case that investors have a long-term investment time horizon. So, although ‘smart diversification’ does not guarantee against loss, it will likely help with the most important component of reaching long-range financial goals whilst minimising risk.

As we have said before, we will continue to monitor the current financial situation and keep you notified of any changes that are made. If you would like to discuss how the current situation might affect you, then please seek professional financial advice to discuss your financial situation further.


  5. FE Analytics
  6. Efficient market – Market efficiency refers to the degree to which market prices reflect all available, relevant information. If markets are efficient, then all information is already incorporated into prices, and so there is no way to “beat” the market because there are no undervalued or overvalued securities available –
  7. Inefficient market – An inefficient market is one that does not succeed in incorporating all available
    information into a true reflection of an asset’s fair price. Market inefficiencies exist due to information
    asymmetries, transaction costs, market psychology, and human emotion, among other reasons. As a result,
    some assets may be over- or under-valued in the market, creating opportunities for excess profits

Potential investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and they may not receive back the amount they originally invested. The tax treatment of investments depends on each investor’s individual circumstances and is subject to changes in tax legislation.

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