When it comes to fund selection, savvy investors will rightly focus on the investment philosophy and process, the vehicle’s charges, as well as past performance.

In terms of the qualities of the portfolio manager, many investors will look for long-term experience in the financial world or extensive qualifications, but there is one oft-overlooked trait which can provide a significant advantage: practical experience within the sector the fund manager is investing in.

Such expertise can be invaluable, conferring the stockpicker with a competitive advantage in sectors where investment outcomes can be binary, such as commodities and natural resources, or biotechnology.

A period spent actually working in the industry, academia or business before making the transition to fund management can give the specialist investor an edge over the generalist investor.

As Darius McDermott, managing director at FundCalibre, informs Shares: ‘Practical industry expertise combined with financial acumen can elevate a good fund manager into a truly exceptional one. While financial knowledge is vital, managers who have worked within the industries they invest in often bring deep technical insight, a real-world understanding of market dynamics, and often valuable networks that help uncover opportunities others might miss. This experience can provide a crucial edge over the competition.’

According to McDermott, Nick Martin, lead manager of the Polar Capital Global Insurance Fund (B5339C5), exemplifies this blend.

Martin’s career began at Mazars Neville Russell, where he specialised in audit and consultancy services for insurance companies and brokers. ‘His deep knowledge of the insurance sector, built over many years working in risk and casualty markets, has been fundamental to the fund’s success - helping it become one of the best-performing funds of 2024, and offering investors rare access to a specialist and often undervalued sector,’ insists McDermott.

Similarly, Peter Michaelis, head of the Liontrust Sustainable Investment team, started his career after completing a PhD in Environmental Economics, going on to work as an environmental engineer at the Steel Construction Institute, before shifting into fund management over 20 years ago. ‘His combination of scientific expertise and financial skill has helped build one of the UK’s most successful and recognisable sustainable investment brands,’ observes McDermott.

Another example is Gareth Powell, manager of the Polar Capital Healthcare Opportunities Fund (B3NLDF6), who studied biochemistry at Oxford University and gained hands-on experience in academic laboratories and the pharmaceutical industry, including at Yamanouchi (now Astellas) and the Sir William Dunn School of Pathology.

‘Gareth began his investment career in 1999 at Framlington, where he co-launched and managed the Framlington Biotech Fund,’ continues McDermott. ‘He joined Polar Capital in 2007 to establish its healthcare team and now brings over two decades of sector experience, combining top-down thematic ideas with rigorous stock selection, underpinned by deep industry insight.’

THE APPLIANCE OF SCIENCE

Industry experience and scientific backgrounds can be significant advantages for managers in the Biotechnology & Healthcare sector.

Marek Poszepczynski, co-manager of International Biotechnology Trust (IBT), brings both traits to the table at IBT, a fund targeting innovative biotech companies which address high unmet medical needs.

Poszepczynski and co-manager Ailsa Craig are both scientifically trained, which gives them an edge when assessing everything from the nature of clinical trials to the likelihood companies will become acquisition targets for Big Pharma, not to mention spotting any number of red flags.

Poszepczynski has worked for and started biotech companies himself and the managers add value by taking a risk-conscious approach to portfolio management which has led the trust to show a positive five-year share price total return, despite a difficult backdrop for the biotech sector.

‘I am scientifically trained,’ Poszepczynski explains to Shares. ‘The majority of people working in biotech have at least a Masters or Bachelors in Biotechnology or Chemistry or whatever, because it is very science-heavy. I started my career at a Swedish mid-sized company which was a spin-out from Pfizer (PFE:NYSE) and worked for five years in business development. I was scouting for new projects we were supposed to develop, which taught me a lot regarding drug development – what to look for in terms of pre-clinical aspects, regulatory aspects and manufacturing aspects.’

This experience of working in ‘venture’ taught Poszepczynski that you have to think about your investment as well as your exit. ‘When it comes to venture, you need to basically create companies sometimes from scratch. The lesson learned there was management is everything. You can have a great management team with a crappy project and they will always make it work, and you can have crappy management that can ruin the best projects. You have to vet the management teams and the boards.’

During their stint managing International Biotechnology Trust, Poszepczynski and Craig have used their scientific backgrounds and business nous to position the portfolio to benefit from M&A (mergers and acquisitions), a key driver of biotech sector returns with large pharmaceutical companies turning to biotechs to replenish drug development pipelines and fill revenue gaps as patents expire.

‘We have a very, very good hit rate because we are looking for the traits that pharma looks for, and we debate it on a daily basis,’ enthuses Poszepczynski. In January 2025, IBT’s biggest holding Intra-Cellular Therapies, a company advancing treatments for schizophrenia and bipolar depression, was acquired by Johnson & Johnson (JNJ:NYSE) for $132 per share, a 40% premium to the share price.

‘We’d been following Intra-Cellular for five or six years and it had continued to deliver. The company had good Phase III data in CNS (central nervous system) diseases and its compound was “unencumbered”, meaning Intra-Cellular owned it outright. We realised this would be a great addition for a pharma company. Intra-Cellular had also become profitable, which is one of the features pharma looks for because it is quickly accretive to the P&L.’

UNEARTHING OPPORTUNITIES

The resources sector is one where experience on the ground enables the specialist manager to spot things the generalist would likely miss. Take WS Amati Strategic Metals (BMD8NV6), a long-term capital growth fund which invests in listed metal and mining companies whose primary revenues are derived from ‘strategic metals’ – think gold, silver, copper, lithium, nickel, manganese, platinum group and rare earth metals.

The £49 million fund is managed by Georges Lequime and Mark Smith, who possess a rare combination of technical mining and geological expertise as well as fund management experience.

Lequime’s curriculum vitae includes a four-year stint as a mining engineer at Anglo American (AAL), while Smith has a thorough grounding in investment banking and company valuation and spent five years in West and East Africa in gold exploration.

The global network of CEOs, CFOs, brokers, commodity traders, mining engineers and geologists they have built is responsible for many of the opportunities the managers unearth.

A geologist by education, Smith tells Shares: ‘Our skillsets complement each other. In mining and geology there are many reasons management teams use as an excuse for underperformance – weather, technical, social or economic. There’s always a get-out clause for management under-delivering or having a poor performance on the operation of a mine or a cost overrun. We rely on our technical backgrounds to say, “actually that’s not true, you should have seen that coming and these are the reasons”. Having that technical background gives us confidence to front-up management and say “sorry, you’re not dealing with a generalist investor. We worked in the industry and we’ve been doing this for 20-plus years”.’

The fund’s focus on small- and mid-cap mining stocks also plays to the managers’ strengths, as this area of the market requires much more technical due diligence than buying a Rio Tinto (RIO) or a BHP (BHP). ‘We do our own individual analysis of a company,’ continues Smith. ‘If it ticks a box we’ll go out and visit the company’s key mine or exploration asset and then do due diligence on site. It helps us sift through the companies and we’ll discount nine and buy one.’

Lequime insists the duo have a ‘speed-dial to all the CEOs if there’s an issue’ when researching the heavily-discounted development companies they seek. ‘We have a big network of brokers across the world, so we can do checks and balances. That gives us an edge. Mining is an alternative investment sector really, and it has been out of favour for so long. It invites some unsavoury characters who are incentivised on their share price more than anything else, and you could be left holding the can. But we’ve shown with our fund that we do well over time.’

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