NEW YORK (TheStreet) -- The iShares North American Tech-Software ETF (IGV) , which has posted 2014 gains of 15.12%, is home to Citrix (CTXS) and VMware (VMW) , which ranks tenth and seventeenth, respectively, on the fund's weighting list.
But of the 59 software companies in the fund, Citrix and VMware were two of the worst performers in the group, gaining 8.6% and declining 7%, respectively. That the index has been able to beat the Dow Jones Industrial Average (up 8.8%) and the S&P 500 (up 13.1%) has been in spite of the inclusion of Citrix and VMware, not because of it. Take a look at the chart.
IGV data by YCharts
This year's underperformance is only part of the story.
VMware shares are down 32% since reaching their all-time high of $125.25 in October 2007. Likewise, Citrix shares are down more than 40% from their all-time high of $108.87, reached a decade ago.
The problem -- unlike the world's top-two software companies Microsoft (MSFT) (up 26.8%) and Oracle (ORCL) (up 19.2%), neither Citrix or VMware have been able to reinvent themselves. Oracle is trading at its 10-year high of around $46. While Microsoft has not seen its $47 price since the dot-com bubble burst in 2000.
So what can Citrix and VMware do to turn their fortunes around? They can start by better diversifying their businesses. They have to realize that some of their partners are slowly becoming their biggest competitors.
For Citrix, which specializes in desktop virtualization, the company is struggling with growth expectations. Despite the stock being down more than 8% over the past three months, its trailing price-to-earnings ratio of 40, which is more twice the industry average, means investors are still betting that it can grow revenue at an above-average rate.