Fidelity Latin America Fund

Transcription

1 Fidelity Latin America Fund Key Takeaways For the semiannual reporting period ending April 30, 2017, the fund's share classes (excluding sales charges, if applicable) gained about 3%, outpacing the 1.24% return of the benchmark MSCI Emerging Markets Latin America Index. Versus the benchmark, stock selection in Brazil helped the most by far the past six months, followed by non-benchmark exposure to Panama. Conversely, stock picking in Mexico significantly detracted, while positioning in Chile and the fund's stake in cash hurt to a much lesser extent. Among sectors, picks in consumer discretionary added the most value, followed by positioning in consumer staples and industrials. On the downside, underweightings in materials and telecommunication services hurt, as did picks in financials. Looking ahead, Manager Will Pruett expects to pay close attention to evolving challenges in Brazil, as well as political shifts in Chile and Mexico. He likely will remain bearish on Mexican equities amid continued uncertainty regarding U.S.-Mexico trade relations. MARKET RECAP The MSCI ACWI (All Country World Index) ex USA Index returned 10.48% for the six months ending April 30, 2017, rising after the U.S. presidential election. Continental Europe (+16%) benefited from a positive economic tone, but data in the U.K. (+12%) proved more mixed amid plans for Britain's exit from the European Union. Japan (+4%), with little progress on inflation, lagged the rest of the Asia Pacific group (+11%). Canada (+5%) and the emerging-markets (EM) group (+9%) faced some commodity-price volatility. Among sectors, financials (+15%) rode an uptick in interest rates and a rally in banks. Expectations for higher enterprise IT spending lifted technology (+15%). Industrials (+13%) and materials (+11%) were aided by promise of increased U.S. infrastructure investment. Consumer discretionary and health care performed roughly in line with the market, the latter sector rebounding despite ongoing political and regulatory uncertainty. Conversely, telecom services (+2%), utilities (+4%) and consumer staples (+6%) lagged as a preference for riskier assets curbed the appeal of dividend-rich sectors; real estate (+5%) faced the additional worry of future interest rate hikes. Energy (+6%) also trailed the market. Foreignexchange effects on asset returns were mixed: the U.S. dollar strengthened against most major-market currencies, especially Japan's, while largely ceding ground to EM complements. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Manager Will Pruett Fund Facts Trading Symbol: Will Pruett Manager FLATX Start Date: April 19, 1993 Size (in millions): $ Investment Approach Fidelity Latin America Fund is a regional equity strategy that invests primarily in the common stocks of companies located, or with primary operations, in Latin America. The fund employs an actively managed investment approach emphasizing diligent bottom-up stock selection, focused portfolio construction and a low turnover rate. In particular, we seek to own companies with attractive risk/reward characteristics, including those with strong business models, good management teams, healthy balance sheets, high free-cash-flow yields and sustainably high returns on equity. We strive to uncover these companies through in-depth fundamental analysis, working in concert with Fidelity's global research organization, which includes a team of dedicated "on-the-ground" emerging-markets specialists. Q: Will, how did the fund perform for the six months ending April 30, 2017 The fund's share classes (excluding sales charges, if applicable) gained about 3%, outpacing the 1.24% return of the benchmark MSCI Emerging Markets Latin America Index and also topping its peer group average. Looking a bit further back, the fund bested the MSCI index for the trailing 12 months, but lagged its peer average. Q: Please describe recent developments in the fund's investment environment. The past six months felt like a complete rollercoaster ride so I am pleased that my strategy held up well and the fund topped its benchmark. I am a true bottom-up stock picker, emphasizing high-quality companies at reasonable valuations. I focus on characteristics such as the size of the company, the consistency of its products and the degree of regulatory risk it faces. These are more important than growth, in my view. To me, a high-quality company can out-earn its cost of capital over time. I am also attentive to country allocations. With that in mind, let me break down some notable developments this period. Brazil: This was by far the fund's largest country allocation. Six months ago, I described the strong performance of Brazilian stocks, which were influenced by Brazil's senate vote in August to impeach President Rousseff. Though stocks rose steadily following the news, they dipped at the start of this review period as optimism wore off and, despite an 11% gain in January, ended the period with a return of - 1%. Brazil has seen some encouraging improvement, but I think severe challenges remain. Peru: This was another market showing some positive signs. In a close election that included overturning roundone results, Pedro Kuczynski was sworn in as Peru's president last July, providing a boost to Peruvian equity markets. I kept a substantial overweighting here, believing the new president could help lead the country toward greater focus on its domestic infrastructure and less on commodity exports, a direction I viewed as positive for the future of Peru's local economy. Unfortunately for the fund, we saw stocks I typically avoid, notably those I considered 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 lower quality, outperform this period. Chile: High-quality Chilean names stayed expensive, in my view, so I remained massively underweight Chile's market this period. This turned out to be a drag on relative results because Chilean names gained 9% despite decreased earnings and no improvement in fundamentals. Markets also were positively affected by optimism for a new leadership regime: Chile will conduct a presidential election this coming November. Thus far, the leading candidates are both center-right and viewed as pro-business. Mexico: Mexican names in the benchmark, in aggregate, ended the period with a 3% gain. Unfortunately, our stock selection here was a big negative on performance. Largercap consumer companies which I tend to avoid notably outperformed. Both inflation and interest rates increased in Mexico the past six months. Further, consumer confidence was down in the region, and I believed Mexico to be moving toward the later stages of the economic cycle. I determined we could find better opportunities elsewhere. Like Peru, Mexico expects to hold its general election next year, and I will continue to closely monitor developments here. Q: Which stocks bolstered relative results By country, stock picking in Brazil added the most value by far the past six months. Representing a majority of fund assets, our investments in Brazil can have an amplified effect on fund performance over any given period. Our holdings in Brazil gained about 6%, well ahead of the benchmark. Eight of our top-10 largest relative contributors came from Brazil this period. Non-benchmark names were wellrepresented, including Smiles (frequent flyer programming), Tegma Gestao Logistica (courier and logistics), CVC Brasil Operadora (tourism services) and Alpargatas (apparel maker best known for its Havaianas flip flops). I found all of these economically sensitive, or "cyclical," holdings attractively valued and well-positioned for the rebound these stocks experienced the past six months. Q: And what hurt Versus the benchmark, unfavorable stock picks in financials hurt. A number of diversified financial companies I chose to overweight due to what I considered attractive valuations detracted. Despite margins being squeezed in the short term, rising interest rates should help profits longer term, in my view. Thus, I continue to find these stocks attractive despite near-term headwinds. Additionally, some banks I viewed as lower-quality outperformed this period. Take Mexico's Grupo Financiero Banorte, for example. Untimely ownership here made this bank the fund's second-largest detractor for the period. I liquidated the position in January based on concerns I had about a potential credit cycle, which was just before the stock experienced a strong rally. When I met with the company, its management team expressed an optimistic outlook based on low unemployment. However, too many factors high inflation and low consumer confidence, among others indicated to me a more cautious outlook was necessary. Elsewhere, avoiding Brazil's Vale proved our largest individual relative detractor. The world's largest producer of nickel and iron ore and a benchmark stock, Vale benefited from a rally in iron ore prices driven by continued stimulus in China and other activities I viewed as speculative. I considered this change temporary, and Vale's stock price indeed came down near period end, but not enough to offset earlier gains. Q: Did you make portfolio changes this period Heading into the U.S. presidential election, the fund was underweight Mexico. For reasons I mentioned, I reduced our weighting here even more this period. In particular, I trimmed exposure to Mexican financials because I saw their growth rates as unsustainable in the current environment. I also scaled back on consumer discretionary companies due to valuations I viewed as expensive. Overall, I am negative on Mexico based on what I view as peak earnings and peak valuations. Broadly speaking, the fund remains underweight consumer staples. This is due to what I consider high valuations across Latin America. I cut the fund's allocation to the sector to roughly 4% of fund assets, down from about 13% at the start of the period. Eliminating positions in Kimberly- Clarke de Mexico and AmBev were among my moves. Q: Will, what is your outlook as of April 30 Looking ahead, I plan to pay close attention to evolving challenges in Brazil, as I'll describe later on. I will be closely monitoring political developments in Chile and Mexico. I likely will remain bearish on Mexican equities, as I believe that market is exhibiting late-cycle characteristics. Also, I sense continued uncertainty regarding U.S.-Mexico trade relations, which could have considerable implications for Mexico's economy. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 LARGEST CONTRIBUTORS VS. BENCHMARK Will Pruett on Brazil: "From a fundamental standpoint, Brazilian stocks' return on equity (ROE) has been depressed, in my view. At the same time, valuations have been near historical averages. Thus, investors are not having to pay as much for a recovery as they might in other regions. Other positive factors include unemployment, which has stopped increasing; lower inflation; and a cut in interest rates by Brazil's central bank. I think all are likely to continue helping throughout "From a political perspective, we saw a shift in legislative focus to social security reform this period. Further, with President Rousseff now replaced with her running mate, Michel Temer, investor confidence appears to have increased. "Based on these observations, I increased the fund's stake in Brazil from a slight underweighting to an overweighting during the final months of "As I've mentioned in the past, I tend to split the investment universe into two buckets: commodity (oil & gas and metals & mining, for example) and non-commodity. "On the commodity side, I remain generally bearish on Brazil. Many factors, including demand from China, remain unclear and unreliable, in my view. Specifically, I chose to limit exposure to iron ore, expressed via avoiding Vale, mentioned earlier as a detractor. On the non-commodity side, I found stocks I considered much more attractive from a valuation perspective. Here, I decidedly overweighted domestic economically sensitive names trading at what I consider cheap valuations, believing that these stocks offer better opportunities for the fund." Holding Smiles SA Market Segment Consumer Discretionary Average Relative Relative Contribution (basis points)* 3.19% 98 Copa Holdings SA Class A Industrials 2.79% 65 Tegma Gestao Logistica SA Industrials 1.23% 57 Brasil Foods SA Consumer Staples -1.53% 49 CVC Brasil Operadora e Agencia de Viagens SA * 1 basis point = 0.01%. Consumer Discretionary LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment 2.14% 48 Average Relative Relative Contribution (basis points)* Vale SA Materials -5.04% -108 Grupo Financiero Banorte S.A.B. de CV Series O America Movil S.A.B. de CV Series L Grupo Mexico SA de CV Series B Compartamos S.A.B. de CV * 1 basis point = 0.01%. Financials -0.71% -81 Telecommunicatio n Services -3.85% -55 Materials -0.48% -36 Financials 2.37% For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 MARKET-SEGMENT DIVERSIFICATION Market Segment Six Months Ago Financials 36.02% 39.25% Consumer Discretionary 18.54% 17.44% Industrials 13.98% 9.37% Health Care 8.69% 4.34% Information Technology 5.21% 4.88% Energy 4.48% 6.44% Consumer Staples 4.23% 13.48% Materials 4.05% 1.16% Utilities 2.01% 1.88% Real Estate 1.20% 1.09% Telecommunication Services 0.00% 0.00% Other 0.00% 0.00% COUNTRY DIVERSIFICATION Country Six Months Ago Brazil 62.22% 58.17% Mexico 20.47% 22.83% Panama 4.44% 4.04% Peru 4.19% 4.73% United States 3.09% 2.19% United Kingdom 1.84% 2.00% Hong Kong 1.40% 1.33% Spain 1.37% LARGEST HOLDINGS Holding Market Segment Six Months Ago Itau Unibanco Holding SA Financials 10.38% 10.23% Itausa-Investimentos Itau SA (PN) Petroleo Brasileiro SA - Petrobras (PN) (non-vtg.) Smiles SA Kroton Educacional SA Financials 7.33% 4.52% Energy 4.48% 6.44% Consumer Discretionary Consumer Discretionary 3.89% 2.68% 3.51% 3.51% Credicorp Ltd. (United States) Financials 3.20% 3.56% Promotora y Operadora de Infraestructura S.A.B. de CV Industrials 3.05% 2.31% Compartamos S.A.B. de CV Financials 3.04% 2.32% Cielo SA Information Technology 2.95% 3.65% Copa Holdings SA Class A Industrials 2.93% 2.49% 10 Largest Holdings as a % of Net Assets 44.77% 48.60% Total Number of Holdings The 10 largest holdings are as of the end of the reporting period, and may not be representative of the fund's current or future investments. Holdings do not include money market investments. ASSET ALLOCATION Asset Class Six Months Ago International Equities 96.14% 97.67% Emerging Markets 92.93% 94.13% Developed Markets 3.21% 3.54% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 2.26% 1.65% Bonds 0.00% 0.00% Cash & Net Other Assets 1.60% 0.68% Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number. "Tax-Advantaged Domiciles" represent countries whose tax policies may be favorable for company incorporation. 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

6 FISCAL PERFORMANCE SUMMARY: Periods ending April 30, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Latin America Fund Gross Expense Ratio: 1.14% % 18.01% 19.85% -6.37% -7.99% -2.14% MSCI Emerging Markets Latin America Index (Gross) 1.24% 12.19% 16.71% -4.53% -5.12% 0.55% Morningstar Fund Latin America Stock 1.97% 14.89% 21.38% -5.27% -6.03% -0.53% % Rank in Morningstar Category (1% = Best) % 74% 77% 100% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 04/19/ This expense ratio is from the prospectus in effect as of the date shown above and generally is based on amounts incurred during that fiscal year. This fund has a short term trading fee 1.50% for shares held less than 90 days. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com/performance, advisor.fidelity.com, or 401k.com. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. Please see the last page(s) of this Q&A document for most-recent calendarquarter performance. 6 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

7 Definitions and Important Information FUND RISKS Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. The risks are particularly significant for funds that focus on a single country or region. The fund may have additional volatility because it can invest a significant portion of assets in securities of a small number of individual issuers. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. IMPORTANT FUND INFORMATION Relative positioning data presented in this commentary is based on the fund's primary benchmark (index) unless a secondary benchmark is provided to assess performance. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. MSCI Emerging Markets Latin America Index (Gross) is a marketcapitalization-weighted index that is designed to measure the investable equity market performance for global investors in the emerging market countries of Latin America. MSCI ACWI (All Country World Index) ex USA Index is a marketcapitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. Should not be construed or used as a recommendation for any sector or industry. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. 7

8 Manager Facts Will Pruett is a portfolio manager at Fidelity Management & Research Company (FMRCo), the investment advisor for Fidelity's family of mutual funds. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, Mr. Pruett is responsible for managing Fidelity and Fidelity Advisor Latin America Fund (since 2015). Prior to assuming his current role in September 2015, Mr. Pruett worked as equity research analyst covering financial companies from 2013 to 2015, Global Mining from 2011 to 2013, and the International Consumer segment from 2008 to Before joining Fidelity in 2008, Mr. Pruett was an international manager at HSBC from 2001 to He has been in the investments industry since Mr. Pruett earned his bachelor of arts degree in economics from the University of Chicago and his master of business administration degree from Harvard University. 8 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

9 PERFORMANCE SUMMARY: Quarter ending September 30, Annualized 5 10 / LOF 1 Fidelity Latin America Fund Gross Expense Ratio: 1.14% % -0.90% -3.87% -2.96% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 04/19/ This expense ratio is from the prospectus in effect as of the date shown above and generally is based on amounts incurred during that fiscal year. This fund has a short term trading fee 1.50% for shares held less than 90 days. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com/performance, institutional.fidelity.com, or 401k.com. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest. Past performance is no guarantee of future results. Views expressed are through the end of the period stated and do not necessarily represent the views of Fidelity. Views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or FMR LLC. References to specific company securities should not be construed as recommendations or investment advice. Information included on this page is as of the most recent calendar quarter. S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. Other third-party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR LLC or an affiliated company. Fidelity Brokerage Services LLC, Member NYSE, SIPC., 900 Salem Street, Smithfield, RI Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee Diversification does not ensure a profit or guarantee against a loss.