Published by Ignites.

By Beagan Wilcox Volz April 2, 2013

Fidelity faces an anti-genocide shareholder proposal on six of its mutual funds at a May 14 shareholder meeting.

But the firm will omit the proposal for two other funds because the individuals who submitted the item in 2009 and 2010 no longer hold shares, disqualifying the proposal from being put up for a vote, according to a letter Fidelity submitted to the SEC in January.

The shareholder proposal is part of a campaign by advocacy group Investors Against Genocide that has targeted numerous fund groups, including American Funds, Artisan, ING, JPMorgan, Putnam and Vanguard.

In March, shareholders at Franklin Resources, advisor to the Franklin Templeton funds, rejected the proposal. Management at the firm had recommended that shareholders vote against it.

Asset managers and their funds have generally recommended that shareholders vote against the proposal because they say it would interfere with the investment policies of their funds.

The proposal typically requests that the board of the fund at issue put in place procedures “to prevent holding investments in companies that, in management’s judgment, substantially contribute to genocide or crimes against humanity.”

The six Fidelity funds with the item up for a vote include the Real Estate Investment Portfolio, Telecom and Utilities Fund, Biotechnology Portfolio, Chemicals Portfolio, Computers Portfolio and Health Care Portfolio.

Fidelity has recommended that fund shareholders vote against the proposal.

“Fidelity, as investment advisor to the fund, seeks to achieve the best investment results for the fund consistent with the stated investment policies of the fund,” according to the firm’s response to the proposal in its proxy statement.

“In doing so, Fidelity is obligated to limit the fund’s investments to holdings that are lawful under the laws of the United States. The board of trustees has procedures in place to review Fidelity’s performance as investment advisor to the fund, including the fund’s compliance with all applicable laws.”

The majority of shareholders of 21 Fidelity funds voted against the proposal in 2008. The proposal was also shot down by a majority of shareholders of 13 Fidelity funds in 2009, according to the Investors Against Genocide website.

Yet the proposal may appear on the proxy statement of numerous other Fidelity funds in the future. In fact, the proposal is pending for 41 Fidelity funds, although votes are not scheduled, according to the advocacy group’s website.

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“The problem is that they’re not making an effort to avoid even the most obvious cases [of companies linked to genocide], and they’re resistant to any policy that would ask them to apply even their own judgment on the matter,” says Eric Cohen, chairman of Investors Against Genocide.

“That’s why we continue to campaign against Fidelity.”

Cohen says that the group asks its volunteers to submit the proposal to numerous funds so that more than one person has the proposal pending for the same fund.

Even though volunteers intend to hold on to the fund shares, he says, there are only so many years one can do that before rebalancing the portfolio or taking other actions. Consequently, it is common for some proponents of the proposal to no longer hold shares when the issue comes up for vote.

In preparation for a May 14 shareholder meeting of two funds — the Natural Resources Portfolio and the Electronics Portfolio — Fidelity says it found that the individuals who made the proposal no longer owned the fund shares.

The SEC issued a brief no-action letter approving Fidelity’s reasoning for omitting the proposal from the proxy statement for those two funds.

Mutual funds generally are not required to hold annual shareholder meetings, says Joshua Deringer, partner at Drinker Biddle. As a result, fund shareholders have fewer opportunities to get their proposals on the ballot.

Fund shareholders typically vote with their feet, however, Deringer adds.

Indeed, Fidelity seems to allude to this in its response to the shareholder proposal.

“The board of trustees recognizes and respects that investors, including those investing in this fund, have other investment opportunities open to them should they wish to avoid investments in certain companies or countries,” it reads.

“Shareholders of the Fund, however, have chosen to invest in this fund based on its specific stated investment policies.”

In July 2012, shareholders of an ING fund approved the proposal; the firm had taken a neutral stance on it. The proposal has not been approved by a majority of shareholders of any other fund.