Positioning Your Portfolio in a Shifting Software Industry

For years now, the software sector has been a tried-and-tested part of growth portfolios for advisors and investors. But the software sector now changing drastically. So it’s important to understand who tomorrow’s winners are, and where they may end up being. 

The shifting nature of the software industry was discussed at length during an episode of the MFS All Angles Podcast. In the episode, host Sean Kenney, CFA, executive vice president and co-head of global distribution at MFS, sat down with Matt Doherty, MFS Technology Sector team leader and software analyst. 

How Agentic AI Is Changing the Game

To start, Kenney asked Doherty to break down what has shifted across the last year and a half for software companies. Doherty explained that this time period marked the emergence of agentic AI. 

As Doherty elaborated, it’s important to understand how agentic AI differentiates itself from what we know was generative AI (gen AI). Gen AI programs like ChatGPT are very prompt-based. They oftentimes follow specific regulations on what they can and cannot do. Meanwhile, agentic AI offers a more autonomous take on AI. Doherty explained that agentic AI does not require a prompt. It can instead take the initiative to update programs and perform operations. He reasoned that generative AI operates more as a copilot. Agentic AI could potentially fill in for human roles. 

The End of SaaS?

There are many shifts happening within the field of artificial intelligence. So Kenney asked Doherty where things stand with the “Software as a Service” (SaaS) era. Many are asserting that the SaaS era is dead. Kenney asked Doherty him what was driving that narrative. 

Doherty broke down three factors that are damaging the SaaS model. First, the rise of AI has lowered the barrier to entry for starting a software company. That’s because AI can now help individuals write code and put together applications. 

Secondly, Doherty explained how the old pricing model for SaaS business models is becoming outdated. Formerly, these companies were selling licenses to individual people. But if an AI platform is doing some or all of the work in replacement of a human, the old model doesn’t work. 

Lastly, he noted things are changing with data moats. New technologies coming to the forefront are making it more difficult for companies to hoard these competitive advantages without getting data transmitted. 

Seeking Strong Software Companies

Kenney then asked Doherty what he looks for when he’s searching for a good software business. Doherty explained some of the factors he looks for are relatively straightforward. These include pricing power, expanding markets, and strong competitive environments. However, he noted that evaluating the quality of a business’ moat is very important.

“Finding durable moats in software is very difficult. And I think right now is probably the most important time to be thinking about that because of the rising competition that’s coming,” Doherty added. “I’ve never really viewed fast-mover or ease of use, which often historically had been quoted as advantages. When there’s so much capital going into this industry and the barriers of starting new software company have dropped, I think that’s when the moats start becoming the most important. I think there are still some durable and enduring moats, which would be switching costs or your brand and distribution, data gravity as we talked about earlier.”

Navigating Software Opportunities With Active ETFs

To help take advantage of the opportunities in the software and technology industries, an actively managed ETF can help. Actively managed ETFs can adapt to shifting innovations in these industries to position around the winners and losers in AI and other software companies. 

The MFS Active Growth ETF (MFSG) offers a significant tilt toward technology, despite the fund not being labeled as a tech strategy. As of October 31, 2025, 51.66% of the fund’s net assets were allocated toward the information technology sector. This can help the fund operate as a diversified take on tech, tapping into momentum in the sector without being beholden to it. 

MFSG takes an active bottom-up approach to its stock selection process. The fund’s portfolio team looks for high-quality companies that offer distinct competitive advantages over their peers, along with deep potential for expanding margins. 

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