Finding Strategic and Cyclical Exposure: Sector and Factor Investing. For financial professional use only. Do not distribute to the public.

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1 Finding Strategic and Cyclical Exposure: Sector and Factor Investing For financial professional use only. Do not distribute to the public. 1

2 Housekeeping Ask Questions Polls Survey & Giveaway Complete survey for a chance to win a power bank battery For financial professional use only. Do not distribute to the public. 2

3 Today s Presenters Moderator Panelist Panelist Tom Lydon Denise Chisholm Darby Nielson Editor & Publisher Sector Strategist Managing Director of Research ETF Trends Fidelity Investments Fidelity Investments For financial professional use only. Do not distribute to the public. 3

4 Finding Strategic and Cyclical Exposure: Sector and Factor Investing March 2017 Denise Chisholm Sector Strategist Darby Nielson Managing Director of Research Not FDIC Insured May Lose Value No Bank Guarantee

5 Sector Theme Investing

6 Where We ve Been Where Are We Going?

7 Where We ve Been One of the critical issues facing the market is earnings growth contraction 60% CORPORATE PROFITS AFTER TAX 50% 40% 30% 20% 10% 0% -10% -20% -30% 7 IVA & CCAdj (SAAR, $) % Change Year to Year Source: Bureau of Economic Analysis (BEA), as of 9/15 Capital consumption adjustment (CCAdj): the difference between private capital consumption allowances (CCA) and private consumption of fixed capital (CFC) IVA: Inventory valuation adjustment; SAAR: Seasonally Adjusted Annual Rates.

8 Consumer Staples Health Care Utilities Energy Materials Consumer Discretionary Telecommunications Financials Industrials Technology Profits Have Slowed Sectors can be a great way to play this theme 7.1% SECTOR AVERAGE ALPHA WHEN EARNINGS GROWTH IS DECELERATING 1985 to Present 6.0% 2.0% 1.0% 0.5% 0.3% -0.1% -0.4% -0.8% -1.6% 8 Equity universe is defined as the top 3,000 U.S. stocks by market capitalization; sectors as defined by the Global Industry Classification Standard (GICS). Source: Haver, as of 12/15. Alpha: A measure of performance on a risk-adjusted basis. Also referred to as excess return.

9 Potential for Change Corporate Tax Reform? Potential for Financial Services Deregulation? 9

10 Possible Impact on Earnings CORPORATE PROFIT ACCELERATION & GROWTH DURING CORPORATE TAX CUTS 12% 14% 2% Acceleration During Growth Post Cut Years Before 10 Corporate Profits is from our internal database defined as the top 3,000 U.S. stocks by market capitalization; sectors as defined by the Global Industry Classification Standard (GICS). Source: Haver, as of 12/16.

11 Tax Reform Implications AVERAGE SECTOR RETURNS Higher Corporate Taxes vs. Lower Corporate Taxes Lower Tax Rates 5% Higher Tax Rates 1% -2% -1% Defensive Sectors Cyclical Sectors 11 Equity universe is defined as the top 3,000 U.S. stocks by market capitalization; sectors as defined by the Global Industry Classification Standard (GICS). Source: Haver, as of 12/16. Defense is an average of staples, healthcare, utilities and telecom sector relative performance. Cyclicals is an average of energy, industrials, materials, discretionary, technology, and financials relative performance.

12 Financial Services Deregulation Implications 2% AVERAGE SECTOR RETURNS Banks More Willing to Lend vs. Less Average Defensive Sectors Average Cyclical Sectors 1% 0% -1% Less Willing to Lend More Willing to Lend 12 Equity universe is defined as the top 3,000 U.S. stocks by market capitalization; sectors as defined by the Global Industry Classification Standard (GICS). Source: Haver, as of 12/16. Defense is an average of staples, healthcare, utilities and telecom sector relative performance. Cyclicals is an average of energy, industrials, materials, discretionary, technology, and financials relative performance.

13 REITs Technology Energy Financial Industry Healthcare Consumer Discretionary Materials Consumer Staples Telecommunications Utilities When Profits Rise Not just on the downside, but when they turn up as well SECTOR AVERAGE ALPHA WHEN EARNINGS GROWTH IS ACCELERATING 1985 to Present 2.0% 1.7% 1.7% 1.2% 1.1% -0.2% -0.3% -0.6% -1.4% -1.7% -2.3% 13 Equity universe is defined as the top 3,000 U.S. stocks by market capitalization; sectors as defined by the Global Industry Classification Standard (GICS). Source: Haver, as of 12/15. Alpha: A measure of performance on a risk-adjusted basis that is also referred to as excess return.

14 Investment Spending Recovery? 50.00% REAL GROSS PRIVATE DOMESTIC INVESTMENT (SAAR, CHN.2009$) % Change Year to Year 40.00% 30.00% 20.00% 10.00% 0.00% % % % 14 National Accounts Data in Haver as of 12/31/2016.

15 What about Rates? 58% INTEREST RATES AND PROFITS Odds of Profit Acceleration 36% Rates Up Rates Down 15 Source: Bureau of Economic Analysis (BEA), as of 12/16; Haver, as of 12/16.

16 Fidelity Factor Research

17 Agenda 1. Overview of Factor Investing 2. Factor Usage A. Strategic Exposure B. Cyclical Exposure C. Portfolio Construction 3. Fidelity Factor ETFs 17

18 Overview of Factor Investing

19 Evolution of Factor Analysis Progression of research into the drivers of asset returns SINGLE SOURCE OF SYSTEMATIC RISK MULTIPLE SYSTEMATIC RETURN ANOMALIES ASSORTED STRATEGIC RISK AND RETURN FACTORS Capital Asset Pricing Model (CAPM) proposes return on investment driven by exposure to single factor, market risk or beta. Fama and French develop model accounting for additional factors, stock characteristics of size and style, which also drive performance. Substantial research and analysis into many other strategic factors, which can be used to explain the components of a stock s return. PORTFOLIO PORTFOLIO PORTFOLIO Market Asset Specific Market Asset Specific Size Style Market Asset Specific Size Style Momentum Quality Value Volatility Yield 19 Source: Fidelity Investments.

20 Evolution of Factor Analysis at Fidelity Fidelity has long history of factor investing, which has evolved significantly over the last decade since the Quantitative Research team was formed Fidelity launches its first quant fund, Disciplined Equity 2007 Global Value and Momentum multifactor model researched and launched 2016 Research, development, and launch of stand-alone factor products Fidelity hires first dedicated Quant analyst Quantitative Research team formally established to complement fundamental capabilities First sector factor model launched in collaboration with fundamental research Quality and Low Volatility models researched and launched Background Fidelity s quantitative research capabilities were built to provide fundamentally based factor insights to portfolio managers, research analysts, and CIOs. Factor-based stock selection models were built via collaborations between FMR analysts and PMs with the Quant Research team. Factor models incorporate the best stock drivers from both fundamental and quantitative perspectives. Evolution resulted in a suite of intuitive, fundamentally-driven models for generating investment ideas and monitoring portfolio exposures. 20 Source: Fidelity Investments.

21 Factor Usage

22 Potential Key Uses of Factor Strategies in a Portfolio Investors seek out factor exposures for return/outcome potential and risk management INTENDED OBJECTIVES Strategic Exposure Cyclical Exposure Portfolio Construction Strategic allocations to factors can enhance risk-adjusted returns. Investors may consider exposure to one or a combination of factors to take advantage of their potential benefits. Because factor returns can vary through time, adjusting factor exposures using a cyclical framework may help investors express a market or investment view. Investors and advisors can use factor-based strategies to fine-tune their exposures and better align their broader portfolios with their intended investment objectives and risk profiles. 22

23 Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Factors Matter Research reveals the return potential of these factors over time CUMULATIVE FACTOR RETURNS VS. THE MARKET, % 7000% Exposure to these key strategic factors has generated market outperformance over time 6000% 5000% 4000% 3000% 2000% Value Quality Momentum Low Volatility Russell % 0% Returns are cumulative and assume reinvestment of dividends. Returns do not reflect the performance of any Fidelity index or ETF. Past performance is no guarantee of future results. Value composite is a combined average ranking of stocks in the equal-weighted top quintile (by book/price ratio) and stocks in the equal-weighted top quintile (by earnings yield) of the Russell 1000 Index. Momentum returns are the equal-weighted top quintile (by trailing 12-month returns) of the Russell 1000 Index. Quality returns are the equal-weighted top quintile (by return on equity) of the Russell 1000 index. Low-volatility returns are yearly returns of the equal-weighted bottom quintile (by standard deviation of weekly price returns) of the Russell 1000 Index. For more detail, see September 2016 Fidelity Leadership Series An Overview of Factor Investing. 23 Source: Fidelity Investments as of 12/31/15.

24 Factor Definitions Matter EXCESS RETURNS OF TWO VALUE MEASURES The performance of a value portfolio can vary based on how value is defined EXCESS RETURNS TO A VALUE COMPOSITE A mix of factors can improve the performance of a value approach Avg. Book/Price Avg. Earnings Yield Yearly Excess Return 40% 30% 20% 10% 0% -10% -20% 1.98% 2.91% Yearly Excess Return 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -30% -15% Book/Price EPLTM Earnings yield: last 12 months of earnings per share divided by price per share. Book/price ratio: the ratio of a company s reported accumulated profits to its price per share. Returns shown are yearly returns of the equal-weighted top quintile (based on these two value metrics) of the Russell 1000 Index. Past performance is no guarantee of future results. Source: FactSet, as of 3/31/16. Value composite is a combined average ranking of stocks in the equal-weighted top quintile (by book/price ratio) and stocks in the equal-weighted top quintile (by earnings yield) of the Russell 1000 Index. Returns shown are yearly returns of this value composite. Past performance is no guarantee of future results. Source: FactSet, as of 3/31/16. 24

25 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Factor Performance Cyclicality Most factors are not highly correlated, so diversifying among them may improve risk-adjusted returns over time Rolling Annual Excess Return 100% 80% Value Book/Price Momentum 60% 40% 20% 0% -20% -40% -60% 25 Value represented by the equal-weighted top quintile (by book-to price ratio) of the Russell 1000 Index. Momentum represented by the equal-weighted top quintile (by trailing 12-month returns) of the Russell 1000 Index. Source: FactSet, as of 3/31/16.

26 Benefits of Factor Diversification Diversifying across multiple factors can help investors achieve more consistent performance over time Yearly Excess Return vs. Broader Market 30% 25% Excess Return Tracking Error Info. Ratio Value 3.4% 5.2% 0.6 Multifactor 1.7% 1.5% % 15% 10% 5% 0% -5% -10% Value Multifactor 26 Equal-weighted multifactor portfolio includes five factor portfolios: size, value, momentum, quality, and low volatility. Size returns are yearly returns of the equal-weighted bottom quintile (by market capitalization) of the Russell 1000 Index. Value composite returns are the combined average ranking of stocks in the equal-weighted top quintile (by book/price ratio) and stocks in the equal-weighted top quintile (by earnings yield) of the Russell 1000 Index. Momentum returns are the equal-weighted top quintile (by trailing 12-month returns) of the Russell 1000 Index. Quality returns are the equal-weighted top quintile (by return on equity) of the Russell 1000 index. Low-volatility returns are yearly returns of the equal-weighted bottom quintile (by standard deviation of weekly price returns) of the Russell 1000 Index. Excess return: compound average of yearly excess returns versus the equal-weighted Russell 1000 Index from Jan through Mar Tracking error: measures the variation of performance relative to the broader market (in this case, the equal-weighted Russell 1000 Index). Information ratio: measures risk-adjusted return (defined as excess return divided by tracking error). Past performance is no guarantee of future results. Source: FactSet, as of 3/31/16.

27 Factor Performance and the Business Cycle Certain factors have tended to perform well in varying market environments; active factor tilts can help generate alpha throughout the economic cycle. FACTORS AND THE BUSINESS CYCLE Objective Add excess return potential to a portfolio Factor Early Mid Late Recession Value Factor Strategy Adjust portfolio allocations over time to increase exposure to opportunistic factors Dividend Yield Size + + Momentum ++ + Quality + + Low Volatility Unshaded (white) portions above suggest no clear pattern of over- or underperformance vs. broader market. Double +/ signs indicate that the sector is showing a consistent signal across all three metrics: full-phase average performance, median monthly difference, and cycle hit rate. A single +/ indicates a mixed or less consistent signal. Value composite is a combined average ranking of stocks in the equal-weighted top quintile (by book/price ratio) and stocks in the equal-weighted top quintile (by earnings yield) of the Russell 1000 Index. Momentum returns are the equal-weighted top quintile (by trailing 12-month returns) of the Russell 1000 Index. Quality returns are the equal-weighted top quintile (by return on equity) of the Russell 1000 index. Low-volatility returns are yearly returns of the equal-weighted bottom quintile (by standard deviation of weekly price returns) of the Russell 1000 Index. Dividend Yield composite is the equal-weighted top quintile (by dividend yield) or the equal-weighted Russell 1000 Index. For more detail, see September 2016 Fidelity Leadership Series Putting Factors to Work. Past performance is no guarantee of future results. Source: Fidelity Investments (AART).

28 Factors as Risk Management Tools Adding allocation to a low volatility strategy can help improve a portfolio s risk-adjusted return through decreased volatility. ADDITION OF LOW VOLATILITY: PERFORMANCE AND RISK COMPARISONS Objective Annualized Return and Volatility (%) July 2006 June 2016 Reduce level of risk in a portfolio while still maintaining return potential Factor Strategy Annualized Return Volatility 17.2% 14.5% 15.5% Factor-based strategies can complement active funds by offsetting risk exposures 9.2% 8.9% 7.5% Large-Cap Growth Fund Large-Cap Growth Fund + Low Vol Russell 1000 Index 28 Large-cap growth fund represented by the median fund by return volatility within the top quintile of 10-year performance in the Morningstar large-cap growth category. Low-volatility portfolio is the equal-weighted bottom quintile (by standard deviation of weekly price returns) of the Russell 1000 Index. Large-cap growth fund + low vol is an equal-weighted portfolio of this active large cap growth fund and a low-volatility factor portfolio. Annualized returns from July 2006 through June Volatility represented by standard deviation (a measure of return variance). A portfolio with a lower standard deviation exhibits less volatility. For more detail, see September 2016 Fidelity Leadership Series Putting Factors to Work. Past performance is no guarantee of future results. Source: Fidelity Investments and FactSet, as of 6/30/2016.

29 Fidelity Factor ETFs

30 Fidelity Factor ETFs Overview Focus on fundamental investment opportunities, leveraging our insights to define our factor-based strategies FDVV FDRR FDVV Fidelity Core Dividend ETF FDRR Fidelity Dividend ETF for Rising Rates FDLO Fidelity Low Volatility Factor ETF FVAL FDLO Aiming to generate higher relative dividend yield with sector tilts, subject to constraints, which have historically delivered higher yield Targeting higher-yielding companies with positive correlation to rising Treasury yields can provide protection in a rising rate environment Focusing on securities, which generate similar returns as the broader market over time with less volatility FQAL FDMO FDMO Fidelity Momentum Factor ETF FQAL Fidelity Quality Factor ETF FVAL Fidelity Value Factor ETF Seeking outperforming stocks, which have had a tendency to continue to outperform over the medium-term Prioritizing companies with higher profitability, stable cash flows, and good balance sheets, which have tended to outperform their peers over time Capitalizing on cheap stocks, with low prices relative to fundamentals, which have historically outperformed the market over time Purchase Information Rule-Based Passively Managed Investment Approach Net Expense Ratio: 0.29% Proprietary Methodology Fidelity Investments Stock Exchange: NYSE Independent Calculation Agent S&P Dow Jones Fidelity Brokerage Trading Fees: Commission Free/30-day shortterm trading fee 1 Sub-Advisor Geode Capital Management 30 1 Free commission offer applies to online purchases of Fidelity ETFs in a Fidelity brokerage account with a minimum opening balance of $2,500. The sale of ETFs on Fidelity s brokerage platform are subject to an activity assessment fee (of between $0.01 to $0.03 per $1000 of principal) by Fidelity. Fidelity ETFs traded in Fidelity brokerage accounts are subject to a short-term trading fee by Fidelity, if held less than 30 days. Source: Fidelity Investments.

31 Questions? Please submit your questions using the Q&A box. For financial professional use only. Do not distribute to the public. 31

32 Glossary Term 12-Month Return Minus 1-Month Return 12-Month Earnings Surprise 6-Month Average Short Interest Active Share Beta Cash Flow Correlation to 10-Year Treasury Dividend Growth Dividend Yield Earnings-Per-Share (EPS) Growth Enterprise Value (EV)-to-EBITDA Free Cash Flow (FCF) Free Cash Flow Margin Free Cash Flow Stability Free Cash Flow Yield Definition Cumulative 12-month stock return less the prior month s stock return. A measure of comparison between the consensus earnings-per-share estimate from 12 months ago and actual earnings-per-share. A measure of the monthly average number of shares shorted divided by monthly average number of shares traded. The percentage of a an index s weight-adjusted portfolio that differs from another comparison index. A historical measure of a fund's sensitivity to market movements and is calculated by comparing the fund's monthly returns, over 36 months, to those of the market, defined by the fund's benchmark. By definition, the Beta of the market (as measured by the benchmark) is 1.0. A Beta of less than 1.0 indicates that the fund is less sensitive to the market, while a Beta of more than 1.0 indicates that the fund is more sensitive to the market. The higher the correlation between the fund and the market (as measured by R-squared), the more meaningful is Beta. A measure of cash generated by a company, which is calculated adding non-cash charges to net income after taxes. A measure of the correlation of weekly changes in the 10-year Treasury yield with weekly stock returns. A measure of growth in dividends per share over the last year. A measure of trailing dividends over last 12 months divided by price per share. Measures the growth in reported earnings per share over the specified past time period. Enterprise value divided by earnings before interest, tax, depreciation, and amortization. A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. A measure of cash generated after deducting all investments needed to maintain and expand assets divided by total earnings. A measure of the stability of a company s free cash flows, calculated as a percentage of the last 20 quarters with positive free cash flow values. A valuation measure of a stock, which standardizes a company's free cash flow by its market capitalization. Generally, the lower the ratio, the less attractive the investment and vice versa, with the logic that investors would like to pay as little a price as possible for as much free cash flow as possible. 32

33 Glossary Term Information Ratio Market Capitalization Definition Measures a fund's active return (fund's average monthly return minus the benchmark's average monthly return) in relation to the volatility of its active returns. The total dollar market value of all of a company s outstanding shares. Payout Ratio A measure of trailing dividends per share over the past twelve months divided by earnings per share. Price-to-Book (P/B) Ratio The ratio of a company's current share price to reported accumulated profits and capital. Price-to-Cash Flow (P/CF) Ratio Price-to-Earnings (P/E) Ratio (IBES 1-Year Forecast) Price-to-Earnings (P/E) Ratio Trailing The ratio of a company's current share price to its trailing 12-months cash flow per share. The ratio of a company's current share price to Wall Street analysts' estimates of earnings. The ratio of a company's current share price to its trailing 12-months earnings per share. Price-to-Tangible Book Value (TBV) Return on Invested Capital (ROIC) Standard Deviation Volatility-Adjusted 12-Month Return Minus 1-Month Return The ratio of a company s current share price to its total book value, less the value of any intangible assets. A measure of how effectively a company uses the money (borrowed or owned) invested in its operations, typically expressed as net income minus dividends divided by total capital (debt plus equity). A measure of dispersion of a set of data from its mean. Cumulative 12-month stock return divided by monthly volatility, as measured by standard deviation, less the prior month s stock return. 33

34 Important Information Not FDIC Insured. May Lose Value. No Bank Guarantee. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with any investment or transaction described herein. Fiduciaries are solely responsible for exercising independent judgment in evaluating any transaction(s) and are assumed to be capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies. Fidelity has a financial interest in any transaction(s) that fiduciaries, and if applicable, their clients, may enter into involving Fidelity s products or services. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information. References to specific investment themes are for illustrative purposes only and should not be construed as recommendations or investment advice. Investment decisions should be based on an individual s own goals, time horizon, and tolerance for risk. This piece may contain assumptions that are forward-looking statements, which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here. Past performance is no guarantee of future results. Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. All indices are unmanaged. You cannot invest directly in an index. Business Cycle Definition The typical business cycle depicts the general pattern of economic cycles throughout history, though each cycle is different. In general, the typical business cycle demonstrates the following: Market Indices The S&P 500 Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. S&P 500 is a registered service mark of Standard & Poor s Financial Services LLC. Sectors and industries are defined by the Global Industry Classification Standard (GICS). 34

35 Important Information The S&P 500 sector indices include the standard GICS sectors that make up the S&P 500 Index. The market capitalization of all S&P 500 sector indices together composes the market capitalization of the parent S&P 500 Index; each member of the S&P 500 Index is assigned to one (and only one) sector. Barclays U.S. Corporate High Yield Bond Index is a market value-weighted index that covers the universe of dollar-denominated, fixed-rate, non-investment-grade debt. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies, representing approximately 98% of the investable U.S. equity market. Sectors are defined as follows: Consumer Discretionary: companies that provide goods and services that people want but don t necessarily need, such as televisions, cars, and sporting goods; these businesses tend to be the most sensitive to economic cycles. Consumer Staples: companies that provide goods and services that people use on a daily basis, like food, household products, and personal-care products; these businesses tend to be less sensitive to economic cycles. Energy: companies whose businesses are dominated by either of the following activities: the construction or provision of oil rigs, drilling equipment, or other energy-related services and equipment, including seismic data collection; or the exploration, production, marketing, refining, and/or transportation of oil and gas products, coal, and consumable fuels. Financials: companies involved in activities such as banking, consumer finance, investment banking and brokerage, asset management, insurance and investments, and real estate, including REITs. Health Care: companies in two main industry groups: health care equipment suppliers and manufacturers, and providers of health care services; and companies involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products. Industrials: companies whose businesses manufacture and distribute capital goods, provide commercial services and supplies, or provide transportation services. Technology: companies in technology software and services and technology hardware and equipment. Materials: companies that are engaged in a wide range of commodity-related manufacturing. Telecommunication Services: companies that provide communications services primarily through fixed-line, cellular, wireless, high bandwidth, and/or fiber-optic cable networks. Utilities: companies considered to be electric, gas, or water utilities, or companies that operate as independent producers and/or distributors of power. Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. The views and opinions expressed by the Fidelity speaker are those of their own as of the date of the recording, and do not necessarily represent the views of Fidelity Investments or its affiliates. Any such 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 should not be relied on as investment advice, and because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity product. Neither Fidelity nor the Fidelity speaker can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation. The S&P 500 Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Global Industry Classification Standard (GICS) is a standardized classification system for equities developed jointly by Morgan Stanley Capital International (MSCI) and Standard & Poor's. The GICS hierarchy begins with 10 sectors and is followed by 24 industry groups, 67 industries, and 147 sub-industries. Each stock that is classified will have a coding at all four of these levels. 35

36 Important Information Because of their narrow focus, sector funds tend to be more volatile than funds that diversify across many sectors and companies. Nondiversified sector funds may have additional volatility because they can invest a significant portion of assets in securities of a small number of individual issuers. The funds are considered nondiversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund; thus changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a more diversified fund. General Fidelity Factor ETF Risk Disclosure: 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. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index products. Depending on market conditions, fund performance may underperform compared to products that seek to track a more traditional index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV). Fidelity Core Dividend ETF: 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. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index funds. Depending on market conditions, fund performance may underperform compared to funds that seek to track a market capitalization-weighted index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV). Fidelity Dividend ETF for Rising Rates: 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. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index funds. Depending on market conditions, fund performance may underperform compared to funds that seek to track a market-capitalization weighted index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV). Fidelity Low Volatility Factor ETF: Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index funds. Depending on market conditions, fund performance may underperform compared to funds that seek to track a market capitalization-weighted index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV). 36

37 Important Information Fidelity Momentum Factor ETF: Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index funds. Depending on market conditions, fund performance may underperform compared to funds that seek to track a market capitalization-weighted index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV). Fidelity Quality Factor ETF: Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index funds. Depending on market conditions, fund performance may underperform compared to funds that seek to track a market-capitalization weighted index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV). Fidelity Value Factor ETF: Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The securities of smaller, less well-known companies can be more volatile than those of larger companies. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund s factor investment strategy may differ from more traditional index funds. Depending on market conditions, fund performance may underperform compared to funds that seek to track a market-capitalization weighted index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV) Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its affiliates; (2) may not be copied or distributed; (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. Morningstar is a registered trademark of Morningstar, Inc., and is not affiliated with Fidelity Investments. Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or an affiliated company. Before investing in any mutual fund or exchange traded product, have your client consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, or a summary prospectus if available, containing this information. Have your client read it carefully. Fidelity Investments Institutional Services Company, Inc., 500 Salem St., Smithfield, RI

38 Thank You For financial professional use only. Do not distribute to the public. 38