3 ASX stocks that highlight how active investing delivers outperformance

Investors today are debating the benefits of active vs passive investing. We are advocates of active investing but we are biased given we run an active index-unaware investment strategy that has outperformed over the last 12 years.  

Why do we believe active works?

There are great investment opportunities open to active investors in the market, especially at the small end.  

We continue to believe that traditional investment fundamentals such as earnings growth, free cash flow, balance sheet strength, and return on invested capital (ROIC) remain intrinsically important to long-term performance. Concentration risk, financial gearing and FUM size also need to be managed.  

As an active manager you don't have to get everything right, but disciplined risk and portfolio management will deliver market outperformance.   

Active investing works  - a few examples

Here, we highlight some examples where active stock picking has worked well for us in the past. We share the key reasons for the investments in the first instance, and what they delivered for the portfolio. Further down, we share a current investment we believe has the same potential. 

PSC Insurance (ASX: PSI)

PSC Insurance was a long-term portfolio position. The company undertook an IPO in December 2015 and listed at $1.00 a share. In 2024, PSC Insurance was acquired for $6.19 a share.  The business model grew primarily through the acquisition and consolidation of insurance broking businesses both in Australia and the UK.  

Initially, we were attracted to the business model’s track record for earnings growth. 

Prior to listing, the business had grown from a single business unit in 2006 to a diversified international group of start-ups and acquired operations. In addition, the business offered an attractive return on invested capital, free cash flow, a strong balance sheet and an experienced management team.

Owning PSC insurance from IPO to acquisition delivered great returns for the portfolio.  We liked the very consistent and predictable earnings growth delivered by the company.  In addition to the strong and stable management team, the industry structure was also attractive.  

Lindsay Australia (ASX: LAU)

Lindsay is an integrated transport, logistics and rural supply business based in Brisbane. Its core service is dry and refrigerated transport. The company serves the major supermarket and fresh produce chains.   

Transport is a competitive business. However, post COVID there was a significant change in the competitive landscape when another major trucking group went broke.  

As a result, the stock re-rated enormously and an investment in the stock delivered strong outperformance. Maintaining a relationship with the company and identifying the changing industry catalyst provided the opportunity to own the stock.   

SKS Technologies (ASX: SKS)

Now, to a stock we currently own.  

SKS Technologies provides design, supply, and installation services for the domestic audio-visual, electrical, and communication services sectors. The company is well-positioned to deliver strong earnings growth associated with rapidly expanding demand within the data centre sector.

Investment trends within the sector are well-established, and demand is forecast to exceed supply over the medium term.

Improving scale and fixed-cost leverage is expected to deliver further operating margin expansion over the next two years.

SKS is a founder-led business with a strong and experienced management team. Industry relationships within the electrical and telecommunications sector are long-standing.

We believe the SKS valuation is compelling given the robust earnings growth profile and manageable business execution risks.  

The Centennial Level 18 Fund

The Centennial Level 18 Fund delivered strong outperformance in the last year. For the year to December 2024, the fund delivered a return of +21.3% after all fees.

Calendar year 2024 was a big year for global equities. Technology-driven artificial intelligence (AI), moderating inflation and central bank interest rate cuts broadly drove the rally in global markets during the year. Notwithstanding the strong market returns in 2024, our bullish outlook for the Australian market in the next year is unchanged.

Since inception (2012), the Level 18 Fund has delivered a +12.7% net return per annum. We expect the Fund’s performance track record to continue in 2025 at a similar level. 

Managed Fund

The Level 18 Fund (Platform Class)

Australian Shares

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