The decline in proxy proposals that seek to change investment restrictions began last year and has continued this year, and so it stands to reason that it is, at least in part, market performance related, said Russ Kinnel, a senior analyst with Morningstar. When the market was doing well, there was impatience on the part of investors with funds that did not yield high returns. Funds that had limits on the percentage of assets that could be invested in equities or on what size companies the fund could buy were fighting with their hands tied behind their back. These days, however, safety is back in vogue.
"A large number of those [proxy proposals] were aimed at changing the fund's growth potential and looking at the dividend requirements so that they could go after stronger performing stocks," Kinnel said. "Now all those safeguards look really useful. No one is really interested in chasing performance in this market."
Another contributor to the decline in those kinds of proposals over the past couple of years is likely related to compliance issues, according to Abbot Martin, senior mutual fund analyst with ISS. Following the passage of the National Securities Markets Improvement Act of 1996, which largely relaxed fund investment objective regulations, firms began reviewing and often revising the investment restrictions on their funds.
"Firms were relaxing their restrictions and just had to then comply with looser regulations, but I think they would have worked that all out by now," Martin said.