Investor confidence gradually returned through mid-year, supported by strong commodity prices and interest rate cuts by the Reserve Bank. This culminated in a rally in the ASX 200 to its October highs where the index touched its highest point of the year, buoyed by the materials and banking sectors.
 

Applying the theory this year

In early 2026, with some time to reflect before the ASX-listed company reporting season starts in February, investors may consider underperforming stocks from 2025 to see if there are opportunities that could potentially enhance portfolio returns this year.

In Atlas Funds Management’s view, several bottom-performing stocks could potentially stage comebacks if the experience in 2025 – which was based on the worst-performing stocks in the ASX 100 index in 2024 - is repeated. 
 

How the worst-performing stocks from 2024 fared in 2025

Source: Iress & Atlas Funds Management. Data at 31 December 2024 and 2025.

In 2025, the average equal-weighted return (each company is treated the same in this analysis, regardless of market capitalisation) of underperformers from 2024 was 25.2%, a long way ahead of the ASX 200 return of 10.3%, Atlas analysis shows.

In the US, the Dogs of the Dow similarly had a winning record, up 18% in 2025 and ahead of the Dow Jones’ 14% gain, courtesy of US healthcare and technology companies, according to Altas' analysis.
 

How Dogs of the Dow theory works

Michael O'Higgins popularised a systematic strategy of investing in underperforming stocks, Dogs of the Dow in his 1991 book Beating the Dow.

This approach draws on the same investment principles used by contrarian investors who search for 'deep value' in company valuations, which can involve buying out-of-favour stocks.

O'Higgins advocated buying the 10 worst-performing stocks in the Dow Jones Industrial Average (DJIA) over the past 12 months at the start of the calendar year but restricting the selection to companies still paying dividends. 

Restricting the investment universe to a large capitalisation index like the Dow Jones or ASX 100 increases the likelihood (though there are no guarantees) that an unloved company in a particular year has the financial strength or understanding of capital providers (such as existing shareholders and banks) who may provide additional capital to allow the company to recover over time.

Having bought the 10 stocks in January, O’Higgins’ strategy then holds these stocks over a calendar year and sells them at the end of December. The process then restarts the following year, buying the 10 worst performers from the year that has just finished. 

Historically, the theory has been defined as selecting the 10 worst‑performing stocks in the ASX 100 Index from the preceding calendar year for analysis.

In the last 10 years, the 10 worst-underperforming stocks of top 100 Australian companies in a calendar year have either matched or beaten the ASX 200 index in eight annual periods. That’s a better strike rate compared to applying the theory to the Dow Jones index in the US, which managed it only five times, according to Atlas Funds Management analysis.

This could be due to the larger universe of 100 companies of ASX companies, compared to the narrower 30 companies that comprise the Dow Jones Industrial Average. 
 

Risks with this strategy 

The main risk with this strategy is that poor conditions for the companies in the poor-performing companies list persist in the following year. 

For example, the 10 largest underperforming shares of 2014 in the ASX 100 had a terrible 2015, falling a further -24% after a -36% decline in 2014, according to Atlas analysis.

Here, both iron ore and oil continued to fall in 2015, putting further pressure on the stocks. This saw several companies on the list conduct dilutive equity capital raisings to placate bondholders.   
 

Retail investors may have an advantage

One reason the Dogs of the Dow theory has persisted since the 1990s may be that institutional fund managers often report the contents of their portfolios to asset consultants as part of their annual reviews. 

This process incentivises fund managers to sell the underperformers in their portfolio towards the end of the year as part of 'window dressing' their portfolio before being evaluated by an asset consultant.

For example, in early 2025, fund managers owning any of the lithium miners would have faced stern questioning from asset consultants about why they owned these companies with bleak outlooks for the coming year. 

Declining uranium prices and the slow closure of reactors worldwide made 2024 a tough year for uranium producers. However, fortunes turned in 2025, with big tech companies such as Microsoft and Google announcing plans to restart nuclear facilities in the US to provide stable, cheap power for AI infrastructure. This development was not anticipated 12 months ago. 

Unlike fund managers, retail investors (who do not have to explain their decisions to asset consultants) have the flexibility to buy companies whose share prices have been under pressure late in the year, which could rebound if selling pressure stops by the following December. 

Furthermore, retail investors may be able to take a longer-term view of a company's investment merits, even if it has hit a speed bump.
 

Worst-performers in 2025

The 10 worst-performing stocks in the ASX 100 in 2025 comprise a range of well-known companies that would feature in the portfolios of many growth-style fund managers. 

These stocks include Treasury Wine Estate (ASX:TWE), WiseTech Global (ASX:WTC), James Hardie Industries (ASX:JHX), CSL (ASX:CSL), Xero (ASX:XRO), Telix Pharmaceuticals (ASX:TLX) and REA Group (ASX:REA). 

What is noticeable, in Atlas’ opinion, is the absence of a group of companies impacted by the falling price of a single commodity. 

According to Atlas, the key themes common to the companies whose share prices struggled in 2025 were:

1. questionable acquisitions
2. regulatory issues
3. weaker US consumer demand
4. corporate governance issues.

Conclusion

Atlas Funds Management has been analysing the 10 worst-performing stocks of the ASX 100 each year since 2010.

Historical analysis indicates that outcomes for companies in the bottom 10 have varied, including periods where some companies experienced improved share‑price performance.

However, sitting here in January, picking the candidates for share price rebounds is always very challenging,  

In selecting a share-price recovery candidate for the year, we generally look at companies whose current woes are company-specific rather than caused by factors outside the control of their management team, such as commodity prices, government policies or long-term decline in a company's products. 

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[1] S&P Global, ‘S&P/ASX 200 Fact Sheet’, Calendar-year 2025 return.

[2] spglobal.com/spdji/en/indices/equity/sp-asx-200/#overview