These 4 Battered Funds Are Built for a Software Comeback

Software stocks have been hit hard. The Morningstar Global Software Index was down nearly 8% in 2026 through May 31, versus a 12.5% gain for the Morningstar Global Markets Index. The culprit? A market gripped by artificial intelligence-induced panic, convinced that incumbent software vendors may soon lose business and one day perhaps become obsolete. Investors have stampeded for the exits.

However, much of the market’s reaction is just fear at this stage. Several software companies have continued to post profits and growth. It’s certainly possible that some, or even many, software companies will survive or even thrive by using AI to enhance their existing services.

For the contrarian investor willing to look past the carnage, four funds taking a beating today may be worth a second look.

Morgan Stanley Institutional Growth MSEGX has long bet on durable, competitively advantaged businesses with long runways. Its concentrated, high-conviction style means it goes down hard when its themes fall out of favor, and its software and IT services holdings are precisely out of favor right now. Lead manager Dennis Lynch added to his software stake in 2025, magnifying the near-term pain. The fund’s bottom-decile showing among large-growth Morningstar Category peers through the first five months of 2026 stings, but results could pick up in a hurry should sentiment change. The fund’s historically boom-or-bust track record would certainly support the possibility.

Polen Growth POLRX has similarly been caught in the market’s crosshairs. Lead manager Dan Davidowitz keeps a concentrated portfolio of about 20 top ideas that have traits such as high returns on equity and resilient margins. Over the long term, that’s been a recipe for success, but patience has cost the fund in the near term as software names nosedived. While Davidowitz cut laggards like Adobe ADBE and Intuit INTU, he’s stuck by others like ServiceNow NOW, which took up over 5% of assets as of March 31. Plus, the portfolio remains meaningfully underweight in soaring tech hardware stocks (including Nvidia NVDA) versus the Russell 1000 Growth Index. A reversal in leadership should reward investors here.

DF Dent Midcap Growth’s DFDMX managers are sticking to their knitting despite a rough 2026. The managers anchor on businesses with consistent earnings growth and healthy balance sheets, which historically have made software stocks a good fit. Despite a bottom-decile showing versus the category through the first five months of 2026, managers Bruce Kennedy and Matt Dent are staying pat with holdings such as Veeva Systems VEEV as they believe their businesses can endure.

Conestoga Smid Cap’s CCSMX quality-oriented approach has long leaned on software stocks with good profit potential. That preference worked well in the last bull market but has hurt in a big way since the start of 2025. The fund landed in the bottom decile of the mid-cap growth category in 2025 and through the first half of 2026, posting losses over both periods. The portfolio held nearly 15% in software stocks as of March 2026, one of the highest figures around, featuring stocks such as Tyler Technologies TYL and Descartes Systems Group DSGX. However, this experienced management team has seen cycles before and is sticking to its approach, which makes the fund a viable bounceback candidate.

This article first appeared in the June 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.