Fidelity Select Gold Portfolio

Transcription

1 Fidelity Select Gold Portfolio Key Takeaways On April 1, 2017, the fund's industry benchmark changed from the S&P Global BMI Gold Capped Index (a custom index developed for Fidelity) to S&P Global BMI Gold Capped 20/45 Linked Index (a public benchmark that became available more recently). Due to new international benchmark guidelines, S&P Dow Jones Indices stopped offering its brand on custom benchmarks, effective March 31, Fidelity believes that the new S&P index will continue to provide shareholders with meaningful performance comparisons. For the semiannual reporting period ending August 31, 2017, the fund's Retail Class shares returned 5.64%, trailing the combined 6.60% return of the S&P Global BMI Gold Capped Index for the first month of the period and the S&P Global BMI Gold Capped 20/45 Linked Index for the last five months. The fund performed about in line with the 5.65% advance of the S&P 500 index. The broader market continued to struggle with differentiating between the short-term and longer-term fundamentals for goldrelated investments the past six months. The gold space was kept in check because the broader market generally felt that the tempo and pace of reversing accommodative reflationary policy might pick up, which could be perceived as negative for gold. The fund lagged the combined industry benchmark largely due to stock-specific issues. Certain overweighted positions in gold stocks that either pulled back due to market sentiment or had operational challenges performed worse than expected. Meanwhile, some underweighted positions fared better than expected. A non-index position in silver bullion, which declined 4%, also detracted. Portfolio Manager Joe Wickwire believes the industry's fundamental drivers continue to support a higher gold price over the near-tointermediate term, and that "right-sizing" the industry could lead to improved returns for the fund's gold stocks. MARKET RECAP The U.S. equity bellwether S&P 500 index returned 5.65% for the six months ending August 31, Following a strong start to 2017, equity markets leveled off in March amid fading optimism for President Trump's pro-business agenda and stalled efforts by Congress to repeal and replace the Affordable Care Act (ACA). Upward momentum soon returned and continued until the index cooled off in August, when geopolitical tension escalated and uncertainty grew regarding the future of health care, tax reform and the debt ceiling. In a stark reversal from 2016, growth-oriented stocks handily topped their value counterparts. Among sectors, information technology (+15%) was a standout, surging as a handful of major index constituents posted strong returns. Health care (+9%) also topped the broader market, climbing from April to period end following renewed efforts to reconsider the ACA. Conversely, financials (+1%) lagged because sentiment regarding the potential for reduced regulation and lower taxes faded as the White House turned its attention to other initiatives. Rising interest rates held back real estate (+4%). Investors' general preference for risk assets, coupled with increased competition, hampered consumer staples (+1%) and telecommunication services (-5%). Lastly, lower oil prices sent energy (-10%) to the bottom of the sector performance rankings. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Portfolio Manager S. Joseph Wickwire II, CFA Fund Facts Trading Symbol: Joe Wickwire Portfolio Manager FSAGX Start Date: December 16, 1985 Size (in millions): $1, Q: Joe, how did the fund perform for the sixmonths ending August 31, 2017 The fund's Retail Class shares returned 5.64%, trailing the combined 6.60% return of the S&P Global BMI Gold Capped Index during the first month of the period and the S&P Global BMI Gold Capped 20/45 Linked Index during the last five months of the period. The fund performed about in line with the 5.65% advance of the broadermarket S&P 500 index. Investment Approach Fidelity Select Gold Portfolio seeks to use gold and gold stocks to diversify risk-tolerant portfolios with an asset class that may protect investors from the loss of global purchasing power that can be caused by inflation or the inability of fiat currencies to maintain their store of real value. The fund seeks to harness the benefits of the gold asset class by primarily providing exposure to a global universe of gold commodity producers, targeting those we believe are best-positioned to deliver above-average returns. The fund may supplement this process with allocations to physical bullion. We utilize active portfolio management to exploit the inefficiencies of the gold asset class for our shareholders who desire efficient risk/reward exposure to it in their portfolios. We seek to generate alpha (risk-adjusted excess return) through sub-industry allocations, security selection and the tactical use of bullion, supported by our deep research infrastructure. Q: What key factors influenced the backdrop for gold-related investments the past six months We saw continued volatility in the prices of gold and goldrelated stocks, which is not unusual, and the broader market continued to struggle with differentiating between the industry's short-term and longer-term fundamentals. Gold typically does well when short-term real interest rates as measured by Fed funds policy rate minus the Consumer Price Index are below 2%. In the U.S., real rates remained negative, and were either low or negative in most of the world. Going into the period and for much of it, the broader equity market generally felt that the tempo and pace of reversing accommodative reflationary policy might pick up, which could be perceived as negative for investing in gold. Real rates trending toward positive or even towards 2% could pose a major headwind for gold and gold stocks. However, I maintained a different view. Real rates are likely to stay low-to-negative for much longer than the market thinks because real economic growth is likely to remain below 2% in developed markets for many years, a view supported by Fidelity's Asset Allocation Research Team. My reasoning is that low real rates are supported by demographics, unfunded entitlement liabilities, high debt levels and the willingness of countries to use artificially low interest rates and cheap currencies to push nominal growth at the expense of real growth. In a nutshell, if longer-term real economic growth is going to be running below the historical average, then it would be hard for real interest rates to reach a level that historically has compromised the merits of owning the gold asset class in a long-term portfolio. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 Overall, I felt the combination of macroeconomic imbalances, geopolitical tensions and a favorable supplydemand profile should be supportive of the gold asset class, albeit with ongoing price volatility. Q: What influenced the fund's performance relative to the combined industry benchmark Given my favorable outlook for the gold space, I tilted the fund's exposure to investments I believed would benefit from the industry's positive fundamental drivers with the potential to deliver above-average returns in a structurally improving gold industry. Generally, these investments can be categorized into two groups of companies: "survivors and thrivers" and "industry solutions." The first category includes companies I felt have the attributes to help them execute well over the long term, including quality assets, good management teams and solid balance sheets. The second category represents companies with assets that solve industry problems for other companies, such as having better gold-mine grades, longer mine-production lives or more-favorable political jurisdictions than the industry average. During the past six months, our mix of holdings in these categories didn't hold up as well as I had expected, resulting in the bulk of the fund's underperformance. Some overweighted fund positions underperformed, either due to the market's skepticism about the gold space or due to operational challenges. At the same time, some stocks that I felt didn't fall into these categories fared surprisingly well. In addition, some of my favored small- and mid-cap (SMIDcap) holdings underperformed larger-cap gold producers amid skepticism for gold early in the period. This weak sentiment for gold was exacerbated when the investment policy of a large exchange-traded fund that had owned only SMID-cap gold producers was changed to include largecap gold stocks. This policy change led to several weeks of buying large-cap stocks and selling SMID stocks, disproportionately pressuring the prices of several of our overweighted junior and exploration SMID-cap holdings. I believed this forced-selling in many SMID-cap stocks was not driven by fundamentals and, therefore, I looked for opportunities to buy more of what I liked. This is an example of how an active strategy can take advantage of what I considered an indiscriminate passive nuance. Elsewhere, our non-index exposure to silver bullion, which returned roughly -4%, also hindered the fund's relative return. Given my favorable outlook for gold, I increased the fund's exposure to silver, in part because the price of silver historically has tended to move in the same direction but at a higher magnitude than gold bullion, among other factors. This tight historical correlation between gold and silver is why some refer to silver as "high-beta gold." In addition, silver was attractive to me because it had been trading at the cheaper end of its historical ratio to gold, along with other supportive factors. Unfortunately, this strategy didn't play out as I expected this particular six-month period. Q: What specific fund holdings disappointed An overweight position in B2Gold was the fund's biggest detractor versus the combined industry index. This survivor-and-thriver gold producer executed well on its project pipeline, but the market chose to maintain a more skeptical view, and our holdings returned -11%. It's worth noting that B2Gold had rallied 175% for the fund during the year ending February 28, Gold industry solution provider Torex Gold Resources, another fund overweighting, returned -13% despite the company's progress on developing a second mine in Mexico. Elsewhere, the stock of Acacia Mining, another overweighting, returned -60%, mainly because the government of Tanzania unexpectedly changed the operating and taxation rules for mining in that country. I reduced the fund's exposure to Acacia this period as the outlook for operating in Tanzania grew more challenging and uncertain. In addition, two companies that were significant underweightings because I didn't see them as either survivors and thrivers or industry solutions IamGold and Kinross Gold held up better than I had expected, and therefore holding back the fund's relative result. Q: Which stocks performed well Among stocks that were overweightings versus the combined index, Premier Gold Mines, an industry solution company, went from being a small-cap exploration-anddevelopment company about a year ago to producing close to 150,000 ounces of gold, and its stock rallied 60% this period. Premier's management team did an excellent job executing across its entire portfolio of assets. Among survivors and thrivers, large gold producer Randgold Resources, another top contributor, was rewarded as part of the market's penchant for moreestablished, well-run companies. Agnico Eagle Mines, a Canadian senior gold producer, operates multiple mines and projects that have been doing well, and the stock rose about 22%. The fund got a relative boost from two non-index positions in copper companies First Quantum Minerals and Ivanhoe Mines, which gained roughly 16% and 25%, respectively. These companies benefited from an improving global economy and increased demand for copper, the price of which rose 13% this period. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 Q: Joe, what's your outlook for gold-related investments as of August 31 The price of gold is a driver for the industry, and the key factors supporting exposure to gold-related investments remain favorable, in my view. In particular, I continue to believe that global economic growth will not be robust enough to allow real interest rates to rise above the 2% level that historically has compromised the merits of owning gold as an investment. Meanwhile, there continues to be a need for industry consolidation among gold- and silver-mining producers, due to what I see as a build up in production since 2008, when gold prices were higher. As a result, I am focusing on companies that I believe can execute well over the long term and those that have unique assets and can provide solutions for other companies. The longer this industry "rightsizing" takes, the greater the possibility for short-term disconnects among the "haves" and the "have nots," which I must provide for in my portfolio construction process. A smaller, more-profitable gold industry could be a positive for the gold price, as lower supply going forward could benefit gold stock returns if profitability is pursued over growth simply for growth's sake. Investors may be well-served by evaluating the longterm appropriateness of their allocation to gold. I consider it to be a financial-asset insurance policy. Spikes in short-term volatility may influence some to deviate from a well-thought-out exposure to gold over some secular horizon. I believe it's always important to know why one owns gold, how much should be owned, and to come up with a methodology that allows an investor to use short-term volatility to maintain a target exposure to the asset class. Note to shareholders: The Board of Trustees has agreed to present a proposal to shareholders to eliminate each sector/industry fund's fundamental "invests primarily" policy and to modify the fundamental concentration policy for certain funds. If the proposals are approved, expected in the fourth quarter, the changes will take place on or about January 1, 2018 (or the first day of the month following shareholder approval), and will not impact how the funds are managed. Joe Wickwire assesses prevailing global geopolitical risk in the context of owning gold: "The recent escalation of tension between the U.S. and North Korea is the latest in an increasingly volatile geopolitical environment dating back to the U.S. terrorist attacks on September 11, That said, I don't view rising geopolitical tension in isolation as the only reason for me to be more bullish in how I'm positioning the fund. Geopolitical risk has been constant over time, and many risks haven't materialized into dire global events let's hope that remains the case. "Importantly, gold becomes more valuable when macroeconomic imbalances and geopolitical risks threaten to compromise real economic growth and the potential ability of financial assets, such as stocks, bonds and cash, to protect global purchasing power. At period end, I felt that macroeconomic imbalances, geopolitical tensions and a favorable supply-demand profile should be supportive of the gold asset class over the next months, albeit with higher volatility. "During the so-called 'lost decade' for stocks ( ) that featured two major bear markets, 9/11, and a global financial crisis in 2008, gold bullion and gold stocks performed very well in absolute terms and ranked among the topperforming asset classes. It is possible that any number of unsettling geopolitical and macroeconomic events going forward could materially impact the trajectory of the global economy and reduce the purchasing power of financial assets. "Instead of reacting negatively to the prevailing and the potential for increased geopolitical risk, I will seek to take advantage of short-term volatility in gold-related assets, embracing it as an opportunity to evaluate the portfolio to ensure the fund owns a mix of gold-related investments that I believe will be driven by longer-term fundamental drivers." 4 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 LARGEST CONTRIBUTORS VS. BENCHMARK Holding Market Segment Average Relative Relative Contribution (basis points)* Premier Gold Mines Ltd. Gold 2.24% 104 Goldcorp, Inc. Gold -3.05% 79 Randgold Resources Ltd. sponsored ADR Gold 3.58% 43 Asanko Gold, Inc. Gold -0.27% 23 Agnico Eagle Mines Ltd. (Canada) Gold 0.51% 19 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment Average Relative Relative Contribution (basis points)* B2Gold Corp. Gold 3.38% -63 IAMGOLD Corp. Gold -1.13% -54 Kinross Gold Corp. Gold -2.57% -50 Fidelity Select Gold Cayman Ltd. Other 5.37% -47 Acacia Mining PLC Gold 0.46% -45 * 1 basis point = 0.01%. 10 LARGEST HOLDINGS Holding Market Segment Portfolio Portfolio Six Months Ago Newmont Mining Corp. Gold 8.27% 6.83% Randgold Resources Ltd. sponsored ADR Gold 7.62% 8.15% Barrick Gold Corp. Gold 7.06% 7.60% Agnico Eagle Mines Ltd. (Canada) Gold 5.55% 5.96% B2Gold Corp. Gold 5.05% 5.65% Franco-Nevada Corp. Gold 4.94% 5.24% Royal Gold, Inc. Gold 3.94% 2.83% Premier Gold Mines Ltd. Gold 3.35% 1.94% Newcrest Mining Ltd. Gold 3.06% 4.53% Torex Gold Resources, Inc. Gold 2.72% 3.32% 10 Largest Holdings as a % of Net Assets 51.56% 53.88% 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 or underlying bullion investments. 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

6 EQUITY MARKET-SEGMENT DIVERSIFICATION ASSET ALLOCATION Market Segment Portfolio Portfolio Six Months Ago Gold 89.97% 90.24% Silver 1.21% 1.03% Precious Metals & Minerals 0.85% 1.07% Diversified Metals & Mining 0.81% 0.78% Copper 0.64% 0.26% Asset Class Portfolio Portfolio Six Months Ago Domestic Equities 12.39% 9.87% International Equities 81.08% 83.51% Developed Markets 74.50% 77.18% Emerging Markets 6.58% 6.33% Tax Advantaged Domiciles 0.00% 0.00% Commodities & Related Investments 5.68% 5.69% Bonds 0.00% 0.00% Cash & Net Other Assets 0.85% 0.93% 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. FISCAL PERFORMANCE SUMMARY: Periods ending August 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Select Gold Portfolio Gross Expense Ratio: 0.87% % 15.90% -4.06% -0.50% -9.70% -1.44% S&P 500 Index 5.65% 11.93% 16.23% 9.54% 14.34% 7.61% S&P Global BMI Gold Capped Index 20/45 Linked Index 6.60% 16.91% -1.25% 0.72% -9.66% -2.04% Morningstar Fund Equity Precious Metals 4.03% 15.19% -3.06% -1.85% -9.68% -2.21% % Rank in Morningstar Category (1% = Best) % 25% 40% 44% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/16/ 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. 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. 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 Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, act as an impartial adviser, or to give advice in a fiduciary capacity. FUND RISKS The value of the fund's domestic and foreign investments will vary from day to day in response to many factors. Stock values fluctuate in response to issuer, political, regulatory, market, or economic developments. You may have a gain or loss when you sell your shares. Investments in foreign securities, especially those in emerging markets, involve risks in addition to those of U.S. investments, including increased political and economic risk, as well as exposure to currency fluctuations. Because FMR concentrates the fund's investments in a particular industry, the fund's performance could depend heavily on the performance of that industry and could be more volatile than the performance of less concentrated funds and the market as a whole. The fund is considered non-diversified 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. The gold industry can be significantly affected by international monetary and political developments such as currency devaluations or revaluations, central bank movements, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. 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. Effective 4/1/17, the fund's industry benchmark will change from the S&P Global BMI Gold Capped Index (a custom index developed for Fidelity) to S&P Global BMI Gold Capped 20/45 Index (a public benchmark that became available more recently). The Board of Trustees unanimously approved a proposal to shareholders for trustee election that would combine oversight of Fidelity's sector funds with Fidelity's broader equity and high income funds under a single Board of Trustees. If approved, the unified Board would be effective on or about 3/1/18. 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. Multiple share classes of a fund have a common portfolio but impose different expense structures. 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. 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. S&P 500 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 Global BMI Gold Capped 20/45 Linked Index is a modified market capitalization-weighted index of stocks designed to measure the performance of companies that produce gold and related products, including companies that mine or process gold and the South African finance houses which primarily invest in, but do not operate, gold mines. Index returns shown for periods prior to April 1, 2017 are returns of the S&P Global BMI Gold Capped Index. MARKET-SEGMENT WEIGHTS 7

8 Manager Facts S. Joseph Wickwire II, CFA, is a portfolio manager at Fidelity Management & Research Company (FMR Co.), 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. Wickwire manages Select Gold Portfolio, Fidelity Advisor Gold Fund, and Fidelity Global Commodity Stock Fund. Prior to joining Fidelity in 2007, Mr. Wickwire held various positions over a 20 year tenure with Wells Capital Management (formerly Evergreen Investments), including portfolio manager of a precious metals fund, director and international equity analyst, senior research associate, as well as various other roles. He has been in the investments industry since Mr. Wickwire earned his bachelor of arts degree in history from Boston College and his master of business administration degree in investment finance and international business from Bentley University. He is also a Chartered Financial Analyst (CFA ) charterholder, a member of the Boston Security Analysts Society, and serves on the Bentley University Hughey Center for Financial Services Advisory Board. In 2011 and 2016, Brendan Wood International named Mr. Wickwire one of its "Top Gun US Metals and Mining Investment Minds." He has appeared on the Bloomberg Business, CNBC, and Fox Business television news channels; been quoted in Barron's, The New York Times, Financial Times, and The Wall Street Journal; and has presented at the University of Chicago's Booth School of Business, Boston College's Carroll School of Management, Cornell University's Johnson School of Management, and the Harvard Business School. 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 Select Gold Portfolio Gross Expense Ratio: 0.87% % 4.31% % -4.21% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/16/ 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. 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.