A fund manager I know runs an interesting exercise about this time each year. Each member of the investment team is given the worst-performing sectors and stocks in the S&P/ASX 200 index and asked to present on them. Would they buy or sell?
Of course, most dud sectors and stocks are that way for a reason. But the exercise occasionally throws up interesting investment ideas that are easy to overlook. At a minimum, it’s a good way to structure one’s thinking about contrarian investing.
I do a cut-down version of that exercise each year. I rank the best- and worst-performing sectors in the ASX 200 to identify unloved ones. It’s not foolproof, but last year’s best and worst sectors often change positions the following year.
This is a critical issue for asset managers in Australian equities right now. Led by the Commonwealth Bank of Australia, the financial sector was up 34% in calendar-year 2024. The Materials sector was down 13% and energy slumped 21%.
By sector weightings, banks and resource stocks dominate the ASX 200. Being overweight Australian banks and underweight miners was a profitable trade last year. Asset managers who bet that local banks were overvalued (that’s true of CBA) and bought resource stocks too early after China stimulus were burnt.
The tech sector also starred on ASX in 2024. Care is needed as a small group of dominant local tech stocks can skew returns. Like the US, our tech sector was boosted by talk about artificial intelligence and Trump’s victory, given the President-elect’s fondness for tech moguls.
The list below, from Morningstar, ranks sector performance.
List 1: Best- and worst-performing sectors in ASX 200 in 2024
- Financials: +34%
- Healthcare: 9%
- Information Technology: +52%
- Energy: -21%
- Materials: -13%
- Industrials: +13%
- Consumer Discretionary: +26%
- Consumer Staples: -2%
- Communication Services: +8%
- Utilities: +11%
- Real Estate: +17%
Source: Morningstar
With stocks, I apply Dogs of the Dow theory to the ASX 200. Dogs of the Dow is a popular stock-picking theory in the US that involves buying the 10 worst-performing stocks in a key index, provided they pay a dividend. The goal: finding treasure among market rubbish that year.
I like the Dogs of the Dow theory because my investment style is to hunt for out-of-favour sectors and stocks, and also because it’s harder to find stocks to buy now in a slightly overvalued market. That said, most stocks in the Dogs of ASX are there for a good reason. At best, the exercise usually throws up a few ideas.
The table below, from Atlas Fund Management (which does terrific analysis on the Dogs of the ASX each year), shows the 10 worst-performing ASX 200 stocks:
Table 1: Dogs of the ASX in 2024
Source: Atlas Funds Management
Resource stocks, predictably, dominate the list. The bubble in lithium stocks burst last year, iron ore producers were hurt by China’s economic woes, Ramsay was affected by slowing revenue and growing cost pressure – a bad combination for a business with lower margins – and IDP was hurt by uncertainty over international student volumes in Australia and other markets.
IDP Education is my pick from the list above. I covered IDP in this column in mid-December in ‘Three unloved stocks for contrarians in 2025’. IDP has rallied from $11.85 to $12.84 since that story. Its recovery has further to go over the next few years, albeit with inevitable setbacks along the way. To avoid repetition, I’ll skip IDP for this column and focus on the lithium plays in the Dogs of the ASX table.
Here are two sector and stock ideas from the lists above for contrarians:
Sectors – energy
I became more bullish on the energy sector in the lead-up to the US Presidential election in November 2025. I expected a Trump victory (though I thought it would be a lot closer) and noted Trump’s ‘drill, baby, drill’ mantra on oil production.
I nominated the Betashares Global Energy Companies Currency Hedged ETF (ASX: FUEL) for energy exposure. FUEL ETF tracks an index that provides exposure to 36 of the world’s largest energy stocks, including Chevron Corp, Exxon Mobil Corp, Shell PLC and TotalEnergies SE, the French energy giant.
Yes, the sector analysis above refers to Australian energy stocks such as Woodside Group and Santos. Nominating FUEL, an investor in global energy stocks, is not a straight comparison. Like in Australia, global energy stocks underperformed last year, creating a contrarian opportunity. The S&P 500 Energy Index (in US dollars) had a lacklustre 6% total return in a bull market.
An improving global economy in 2025, slightly less geopolitical volatility in the Middle East (if the Israel/ Hamas ceasefire holds) and, longer term, energy supply constraints could lift global energy stock performance. Locally, I doubt the energy sector on ASX will be the losing sector this year.
Chart 1: Betashares Global Energy Companies Fund
Stocks – Mineral Resources (ASX: MIN)
Independence Group and Mineral Resources are interesting ideas from the Dogs of the ASX 200 list. I covered IGO in this column in August 2024 at $4.98, after the heavy sell-off in lithium producers. IGO traded recently at $5.16.
At the time, I noted that select lithium producers looked interesting after savage price falls in 2024. I wrote: “A falling lithium price has prompted miners to cut back production or delay mine expansion – conditions that should lead to supply constraints and a recovering lithium price in the next few years.”
In September 2024, I nominated Mineral Resources in my column ‘How to assess scandal-hit companies’. Mineral Resources tumbled after an investigation by the Australian Financial Review uncovered alleged tax evasion by Mineral Resources CEO Chris Ellison. Mineral Resources is down from $38.20 in that column to $35.97.
The company has plenty of headwinds and its management and governance controversy was concerning. Prospective investors should be prepared for continuing volatility in the stock – a recovery could take time and won’t occur in a straight line. Expect plenty of twists and turns to come.
Still, Mineral Resources has been a high-performing business. The company’s operations in mining services, engineering and construction, iron ore and lithium provide diversified exposure – and a lower-risk way to play a lithium recovery in the medium term, through its lithium projects in Western Australia.
The stock might have been Dog of ASX 2024. But the saying ‘every dog has its day’ could apply to Mineral Resources in the next few years, given its current depressed valuation and market negativity towards it.
Chart 2: Mineral Resources
Source: Google Finance
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 20 January 2025.
