Fidelity Growth Strategies Fund

Transcription

1 QUARTERLY FUND REVIEW AS OF SEPTEMBER 30, 2017 Fidelity Growth Strategies Fund Investment Approach Fidelity Growth Strategies Fund is a diversified domestic equity strategy with a mid-cap growth orientation. Our guiding philosophy is that stocks of high-quality companies that exhibit persistent growth and generate positive free cash flow, when purchased at reasonable prices, can outperform the market over time. We believe differences often exist between a stock's price and its true value because the market incorrectly forecasts the sustainability and/or magnitude of future growth. We look to uncover these opportunities through in-depth bottom-up, fundamental analysis, working in concert with Fidelity's global research team. PERFORMANCE SUMMARY Cumulative 3 Month YTD 1 Year Annualized 3 Year 5 Year 10 Year/ LOF 1 Fidelity Growth Strategies Fund Gross Expense Ratio: 0.89% % 13.86% 13.58% 9.17% 14.04% 5.24% Russell Midcap Growth Index 5.28% 17.29% 17.82% 9.96% 14.18% 8.20% Morningstar Fund Mid-Cap Growth 4.63% 16.84% 18.18% 9.13% 12.62% 6.92% % Rank in Morningstar Category (1% = Best) % 54% 21% 83% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/28/ This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent 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. For definitions and other important information, please see the Definitions and Important Information section of this Fund Review. FUND INFORMATION Manager(s): Jean Park Trading Symbol: FDEGX Start Date: December 28, 1990 Size (in millions): $2, Morningstar Category: Fund Mid-Cap Growth 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 the activities of individual companies, general market, and economic conditions. You may have a gain or loss when you sell your shares. The securities of smaller, less wellknown companies may be more volatile than those of larger companies. Foreign investments involve greater risks than those of U.S. investments. "Growth" stocks can perform differently from the market as a whole and other types of stocks and can be more volatile than other types of stocks. Not FDIC Insured May Lose Value No Bank Guarantee

2 Performance Review For the quarter, the fund's Retail Class shares gained 3.12%, trailing the 5.28% result of the Russell Midcap Growth Index. Unfavorable stock selection, particularly in the industrials and health care sectors, held back our benchmark-relative result. At the stock level, Equifax fell precipitously in early September after the consumer-credit reporting agency announced a July data breach affecting more than 145 million of its customers. Shares declined further after Equifax later revealed another breach, this one back in March. In the wake of these reports, the company's chief information officer and its chief security officer both retired. These changes, plus the subsequent departure of the company's CEO at the end of the quarter, helped Equifax recover somewhat from September's depths. For the quarter, shares returned -23%, and our overweighted stake hurt us. Elsewhere, the fund's out-of-index position in Newell Brands also detracted. Shares of the food and home-goods products company returned -20% the past three months. Newell is best known for its household brands Calphalon, Crock-Pot, Rubbermaid and Yankee Candle, and also owns recognizable brands in the office supplies (Sharpie), outdoor (Coleman) and team sports (Rawlings) segments. Hurricane Harvey resulted in a number of supply-chain disruptions, and the firm lowered fiscal 2018 guidance. The revision prompted a number of analysts to downgrade the stock, further hampering its price. In consumer discretionary, positioning in auto-parts retailer O'Reilly Automotive (-2%) held back the fund's relative result. A longtime fund holding, shares of O'Reilly had experienced a tough run due to declining store traffic and earnings growth. In July, the company once again announced weaker-than-expected same store sales, and we decided to sell the position; however, the stock rebounded somewhat and the fund missed out. LARGEST CONTRIBUTORS VS. BENCHMARK Huntington Ingalls Industries, Inc. Scripps Networks Interactive, Inc. Class A VeriSign, Inc. Ulta Beauty, Inc. Visteon Corp. * 1 basis point = 0.01%. Average Contribution (basis points)* Industrials 1.95% 29 Information Technology 0.50% % % % 15 Overweighting Westinghouse Air Brake Technologies, also known as Wabtec, also hurt. The company is a leading supplier of parts, components and systems to the freight- and transit-train industry. The stock price, which fell in mid-july after the firm reported lackluster financial results, returned -17% for the full quarter. On the plus side, positioning in the materials sector helped buoy our relative result somewhat, as did choices in consumer staples. That said, the fund's biggest stock-level contributor came from the industrials sector. In mid-september, shares of military shipbuilder Huntington Ingalls Industries rose strongly after the U.S. Senate approved $700 billion defense spending bill, of which $25 billion has been set aside for shipbuilding. As the manufacturer of the next-generation Virginia-class nuclearpowered fast-attack submarines, Huntington is set to directly benefit from this decision; for the quarter, shares returned 22%. Owning a larger-than-index stake in Scripps Networks Interactive also helped. Shares of the media network, which owns HGTV, Food Network and Travel Channel, among other brands, popped in July after the company announced it was in merger discussions with Discovery Communications, which owns Discovery Channel, Animal Planet and TLC. By the end of July, Discovery agreed to acquire Scripps in a $15 billion deal. For the quarter, shares of Scripps rose 26%; we had trimmed much of the fund's position by period end to take profits. Lastly, we'd note the fund's stake in internet security-services provider VeriSign (+14%). The value of our position rose steadily throughout the quarter, bolstered by the firm's solid business execution and financial results. One of the fund's largest holdings, VeriSign met several of our investment criteria, including strong free-cash-flow (FCF) yield and increasing market share. LARGEST DETRACTORS VS. BENCHMARK Average Contribution (basis points)* Equifax, Inc. Industrials 1.45% -41 Newell Brands, Inc. O'Reilly Automotive, Inc. 1.35% % -28 Wabtec Corp. Industrials 0.78% -24 MEDNAX, Inc. Health Care 0.47% -21 * 1 basis point = 0.01%. 2 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

3 Outlook and Positioning The fund focuses on higher-quality stocks with below-average valuations, emphasizing names with higher relative FCF yield. Historically, fund holdings have exhibited above-benchmark trailing one-year earnings-per-share growth at relatively lower price-to-earnings and price-to-cash flow multiples. We aim to optimize the probability of upside return while focusing on downside-risk protection, and we believe we can accomplish this through individual security selection. Thus, the fund seeks to outperform the benchmark mainly through stock picking while maintaining a more or less neutral sector allocation compared with the benchmark. In accordance with this goal, portfolio sector weightings were all generally within plus or minus 2 percentage points of benchmark. Among sectors, a new position in Take-Two Interactive Software pushed up our information technology weighting. The company's solid FCF yield, continued sales growth from its "Grand Theft Auto Online" product (a multiplayer online version of the eponymous franchise), and strong financial results were among factors that drove our decision to add Take-Two to the portfolio. We also were overweighted in financials. We think the investment environment for this sector remains poised to change under the Trump administration and, given a potential overhaul of industry regulations, we maintained positions in Citizens Financial Group and Huntington Bancshares, both of which fit our investment criteria and, in our opinion, could benefit in a shifting landscape. We also established a new position in Ameriprise Financial, which had a solid FCF yield and balance sheet. We remain overweighted in health care, led by a position in health care tech services provider Cerner, one of the fund's largest holdings as of September 30. Earlier this year, we had an opportunity to buy this "always-expensive" stock at what we considered an attractive valuation. We have strong conviction in the durability of Cerner's business and its highly recurring revenue, which accounts for about 75% of its total sales. We would like to underscore that all of our stock choices are made on an individual basis and in light of company-specific opportunities as well as a low valuation relative to what we believe is the growth potential for that specific company. Moving forward, we believe government stimulus or tax reforms could change cash flows at many firms. Overall, we are seeing more-widespread opportunity for companies to grow their earnings, whether through organic growth, stimulus or tax reform. As we trim fund holdings such as video-game maker Electronic Arts which has grown to the higher end of the mid-cap market and look to uncover new opportunities, we'll be looking to invest in companies that fit our investment process at reasonable valuations and that we believe can benefit in this environment. MARKET-SEGMENT DIVERSIFICATION Portfolio Index Change From Prior Quarter Information Technology 28.50% 27.76% 0.74% 2.04% Health Care 16.90% 14.21% 2.69% 0.35% 15.68% 17.43% -1.75% -3.54% Industrials 15.09% 16.74% -1.65% -1.36% Financials 9.98% 7.08% 2.90% 2.55% Staples 4.63% 4.14% 0.49% -0.23% Materials 3.19% 6.46% -3.27% -0.45% Real Estate 2.91% 3.32% -0.41% 0.04% Energy 0.73% 2.60% -1.87% -0.54% Telecommunication Services 0.00% 0.22% -0.22% -0.01% Utilities 0.00% 0.05% -0.05% -0.01% Other 0.00% 0.00% 0.00% 0.00% CHARACTERISTICS Valuation Portfolio Index Price/Earnings Trailing 22.9x 28.9x Price/Earnings (IBES 1-Year Forecast) 18.6x 21.4x Price/Book 5.1x 5.8x Price/Cash Flow 14.8x 16.8x Return on Equity (5-Year Trailing) 23.6% 20.1% Growth Sales/Share Growth 1-Year (Trailing) 10.8% 10.3% Earnings/Share Growth 1-Year (Trailing) 12.3% 10.9% Earnings/Share Growth 1-Year (IBES Forecast) 25.4% 31.1% Earnings/Share Growth 5-Year (Trailing) 14.0% 12.0% Size ed Average Market Cap ($ Billions) ed Median Market Cap ($ Billions) Median Market Cap ($ Billions) For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

4 LARGEST OVERWEIGHTS BY HOLDING VeriSign, Inc. 2.05% Citizens Financial Group, Inc. Financials 2.03% Total System Services, Inc. 2.02% Huntington Ingalls Industries, Inc. Industrials 2.02% Wyndham Worldwide Corp. 1.59% LARGEST UNDERWEIGHTS BY HOLDING Zoetis, Inc. Class A Health Care -1.07% DXC Technology Co % C.R. Bard, Inc. Health Care -0.79% Rockwell Automation, Inc. Industrials -0.78% International Paper Co. Materials -0.73% 10 LARGEST HOLDINGS Total System Services, Inc. VeriSign, Inc. Huntington Ingalls Industries, Inc. Citizens Financial Group, Inc. Progressive Corp. Wyndham Worldwide Corp. Cerner Corp. Citrix Systems, Inc. Fiserv, Inc. KLA-Tencor Corp. 10 Largest s as a % of Net Assets Industrials Financials Financials Health Care 20.52% Total Number of s 106 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. s do not include money market investments. ASSET ALLOCATION Asset Class Portfolio Index Change From Prior Quarter Domestic Equities 94.88% 99.08% -4.20% -0.55% International Equities 2.73% 0.92% 1.81% -0.62% Developed Markets 2.73% 0.81% 1.92% -0.62% Emerging Markets 0.00% 0.11% -0.11% -0.01% Tax-Advantaged Domiciles 0.00% 0.00% 0.00% 0.01% Bonds 0.00% 0.00% 0.00% 0.00% Cash & Net Other Assets 2.39% 0.00% 2.39% 1.17% 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. 3-YEAR RISK/RETURN STATISTICS Portfolio Index Beta Standard Deviation 9.91% 11.05% Sharpe Ratio Tracking Error 3.23% -- Information Ratio R-Squared For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

5 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. CHARACTERISTICS Earnings-Per-Share Growth measures the growth in reported earnings per share over the specified past time period. Median Market Cap identifies the median market capitalization of the portfolio or benchmark as determined by the underlying security market caps. Price-to-Book (P/B) Ratio is the ratio of a company's current share price to reported accumulated profits and capital. Price/Cash Flow is the ratio of a company's current share price to its trailing 12-months cash flow per share. Price-to-Earnings (P/E) Ratio (IBES 1-Year Forecast) is the ratio of a company's current share price to Wall Street analysts' estimates of earnings. Price-to-Earnings (P/E) Ratio Trailing is the ratio of a company's current share price to its trailing 12-months earnings per share. Return on Equity (ROE) 5-Year Trailing is the ratio of a company's last five years historical profitability to its shareholders' equity. Preferred stock is included as part of each company's net worth. Sales-Per-Share Growth measures the growth in reported sales over the specified past time period. ed Average Market Cap identifies the market capitalization of the average equity holding as determined by the dollars invested in the portfolio or benchmark. ed Median Market Cap identifies the market capitalization of the median equity holding as determined by the dollars invested in the portfolio or benchmark. 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 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 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. Russell Midcap Growth Index is a market-capitalization-weighted index designed to measure the performance of the mid-cap growth segment of the U.S. equity market. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. 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. 5

6 3-YEAR RISK/RETURN STATISTICS Beta is a measure of the volatility of a fund relative to its benchmark index. A beta greater (less) than 1 is more (less) volatile than the index. Information Ratio 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. R-Squared measures how a fund's performance correlates with a benchmark index's performance and shows what portion of it can be explained by the performance of the overall market/index. R- Squared ranges from 0, meaning no correlation, to 1, meaning perfect correlation. An R-Squared value of less than 0.5 indicates that annualized alpha and beta are not reliable performance statistics. Sharpe Ratio is a measure of historical risk-adjusted performance. It is calculated by dividing the fund's excess returns (the fund's average annual return for the period minus the 3-month "risk free" return rate) and dividing it by the standard deviation of the fund's returns. The higher the ratio, the better the fund's return per unit of risk. The three month "risk free" rate used is the 90-day Treasury Bill rate. Standard Deviation is a statistical measurement of the dispersion of a fund's return over a specified time period. Fidelity calculates standard deviations by comparing a fund's monthly returns to its average monthly return over a 36-month period, and then annualizes the number. Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how the fund actually performed, but merely indicates the volatility of its returns over time. Tracking Error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark, creating an unexpected profit or loss. 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. Diversification does not ensure a profit or guarantee against a loss. 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