Fidelity Select Technology Portfolio

Transcription

1 Fidelity Select Technology Key Takeaways For the semiannual reporting period ending August 31, 2017, the fund gained 23.59%, well ahead of the 14.36% return of the MSCI U.S. IMI Information Technology 25/50 Index, and beating the 5.65% advance of the broadly based S&P 500 index by an even wider margin. Against a backdrop of generally robust performance by technology stocks the past six months, the growth-oriented companies in secular-growth industries and cyclical stocks with improving fundamentals favored by Manager Charlie Chai were rewarded. Versus the MSCI sector index, the fund added value across a broad range of industries. An underweighting and stock selection in IT consulting & other services particularly bolstered the fund's relative performance, as did non-index exposure to automobile manufacturers (Tesla) and picks in internet software & services. Conversely, an underweighting in systems software modestly detracted, as did picks in electrical components & equipment. Looking ahead, Charlie believes valuations in some parts of the market could be overheating. However, he remains optimistic about the longer-term prospects for the major themes he's identified, such as cloud computing and "big data." 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. 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 Manager Charlie Chai Fund Facts Trading Symbol: Charlie Chai Manager FSPTX Start Date: July 14, 1981 Size (in millions): $5, Investment Approach Fidelity Select Technology is a sector-based, equity-focused strategy that seeks to outperform its benchmark through active management. We believe technology stocks can be mispriced when long-term growth is underestimated, turnaround stories are misunderstood or cyclical rebounds have been unanticipated. Through fundamental, bottom-up research, we seek to identify global technology companies whose future earnings power is not accounted for in their current valuations. Predicting the future is particularly challenging in the technology sector given its fast pace of innovation, fierce competition and short product cycles. Investment candidates tend to fall in one of four categories: secular-growth companies; underappreciated earnings compounders; depressed cyclical companies with a catalyst for an upturn; and special situations. Sector strategies could be used by investors as alternatives to individual stocks for either tactical- or strategic-allocation purposes. Q: Charlie, how did the fund perform for the six months ending August 31, 2017 The fund gained 23.59%, well ahead of the 14.36% return of the MSCI U.S. IMI Information Technology 25/50 Index. The fund also outpaced both the 5.65% advance of the broadly based S&P 500 index and its peer group average. Looking a bit longer term, the fund returned 40.97% for the trailing year, again comparing favorably with the MSCI index, the S&P 500 and the peer average. Q: What drove the fund's result for the sixmonth period For one thing, we benefited from a strong market, as information technology was by far the best performer among the 11 S&P 500 sectors this period. On top of that, security selection contributed about 7 percentage points to performance versus the MSCI index, while industry weightings added another roughly 3 percentage points. Compared with the MSCI sector index, the fund added value across a broad range of industry groups. An underweighting and stock selection in IT consulting & other services particularly bolstered fund performance, as did non-index exposure to automobile manufacturers (Tesla) and picks in internet software & services. Unusually favorable periods such as this one tend to be the exception rather than the rule. Nevertheless, it was gratifying to be rewarded by the market so convincingly. Q: Which stocks were key contributors versus the MSCI sector index My firm emphasis on growth-oriented companies ruled out investing in two sizable index names that underperformed the past six months: IBM and Intel, the fund's first- and fourth-largest relative contributors, respectively. Particularly from April onward, investors seemed to lose patience with IBM's attempted transformation from a one-stop computing shop to a boutique provider of cloud computing and dataanalytics services. In the second quarter of 2017, all five of IBM's primary business segments reported declining sales. The firm did 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 report growth in cloud computing and some other strategic initiatives, but I thought the company had a long way to go in its efforts to reinvent itself. PC chipmaker Intel performed better than IBM this period but still significantly trailed the MSCI sector index. Like IBM, Intel is in the midst of restructuring. I'm willing to own both IBM and Intel when I think the stocks are cheap enough, but neither one seemed appealing this period. Q: What else contributed A large non-index position in electric-vehicle maker Tesla was our second-best relative contributor this period. Easing concerns about the firm's recent acquisition of SolarCity and about potential delays in the launch of the widely heralded Model 3 sedan fueled a roughly 42% advance for our position. Starting at $35,000, the Model 3 is the company's first vehicle priced for the mass market, and is considered a potential key driver of Tesla's future growth. Our non-index stake in Sunny Optical Technology gained 125% this period. Sunny is mainland China's largest manufacturer of smartphone camera modules and lenses. The firm also supplies lenses for vehicle cameras, another fast-growing market. What's more, investors liked the company's plans to sharpen its focus in the fields of augmented and virtual reality, biometric identification, and artificial intelligence. In August, the company reported triple-digit earnings growth and about a 70% rise in revenue versus the prior year. The fund started the period with a relatively small position here, but I significantly added to it. A non-index stake in JD.com, a China-based online retailer of consumer electronics and home appliances, also merits mention because of its strong performance. The company competes primarily in the e-commerce space against Alibaba but has a different business model, similar to that of Amazon.com. JD has made big investments in logistics and fulfillment, and the company has been able to significantly ramp up the number of orders filled per quarter. For the first quarter, reported in May, the firm reported results that topped estimates and guided higher on second-quarter revenue. That said, I considerably reduced this position for valuation reasons. much exposure here, but the company's strong execution prompted me to add to the position while remaining underweighted. Smartphone maker Apple also was a relative detractor, despite being our top absolute contributor. This unusual situation occurred because I underweighted the stock, which nevertheless was one of our largest holdings, at about 11% of fund assets, on average, this period. I thought Apple's new line of iphone devices, scheduled for launch in September shortly after the end of this semiannual reporting period could be blockbusters, especially the iphone X, the 10 th anniversary edition of the product. This device features three-dimensional sensing which enables new augmented-reality applications and facial recognition as well as an improved display, an upgraded camera and better casing. Nevertheless, I preferred to play this product upgrade primarily through certain Apple suppliers, maintaining underweighted exposure to Apple itself. Q: What is your outlook as of August 31, Charlie I remain optimistic about a number of longer-term trends, although in the short term, I think valuations in some parts of the market might be overheating. In the corporate market, I look for continued growth in cloud computing, with companies relying on remote servers and subscription software. So-called big data delivering real-time analytics that help customers better understand their business is another important trend I am monitoring. In the consumer arena, I think companies that meet demand for internet services and e-commerce support will benefit from the popularity of social media and mobile communications. Looking ahead, I plan to carefully monitor the market's response to the latest Apple iphone devices, given the significant impact they can have on various parts of the technology food chain. Q: What about detractors An underweighting in systems software detracted a bit, as did stock selection in electrical components & equipment. At the stock level, underweighting payment processor PayPal Holdings was untimely, as the stock recorded a 47% gain this period. Given the increasing competition in the mobile-payments space, I was initially reluctant to have 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 Charlie Chai on the valuations of internet companies: "Within the S&P 500 index, the information technology sector gained about 15% the past six months. However, stocks in the group took a hit in June after investment bank Goldman Sachs released a report questioning the valuations of some leading internet stocks, including socialmedia firm Facebook and Google parent Alphabet. "Two other internet-related stocks, Amazon.com and Netflix, are actually part of the S&P 500 consumer discretionary sector but, like the other members of the so-called 'FANG' group, have enjoyed sizable gains recently. "The fund owned large but roughly market-neutral positions in Alphabet and Facebook, a modest outof-index stake in Amazon, and no position in Netflix at period end. Although their valuations are not cheap relative to current earnings, I believe Alphabet and Facebook, in particular, remain reasonably valued, given their solid long-term growth prospects. "Alphabet had a one-year forward price-earnings ratio in the mid-20s at period end. However, I expect the company to post about 15% earnings growth over the next year, driven by mobile search, YouTube and other businesses. Companies with vibrant earnings, such as Alphabet and Facebook, can often 'grow into' their valuations over time. "Additionally, the fund had non-index positions in a number of China-based internet companies, two of the most noteworthy being Alibaba Group and Tencent Holdings. These companies have valuations comparable to their U.S. counterparts, but have grown their earnings faster. This is why I continue to invest actively in China's market." Holding IBM Corp. Tesla, Inc. Sunny Optical Technology Group Co. Ltd. Market Segment It Consulting & Other Services Automobile Manufacturers Electronic Components Average Relative Relative Contribution (basis points)* -2.62% % % 59 Intel Corp. Semiconductors -3.09% 55 JD.com, Inc. sponsored ADR * 1 basis point = 0.01%. Internet & Direct Marketing Retail LARGEST DETRACTORS VS. BENCHMARK Holding PayPal Holdings, Inc. Apple, Inc. ASM Pacific Technology Ltd. NetEase, Inc. ADR Market Segment Data Processing & Outsourced Services Technology Hardware, Storage & Peripherals Semiconductor Equipment Internet Software & Services 1.56% 55 Average Relative Relative Contribution (basis points)* -0.91% % % % -19 Microsoft Corp. Systems Software -4.75% -18 * 1 basis point = 0.01%. 4 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 10 LARGEST HOLDINGS Holding Market Segment Six Months Ago Apple, Inc. Technology Hardware, Storage & Peripherals 10.12% 11.12% Facebook, Inc. Class A Internet Software & Services 6.94% 5.21% Tesla, Inc. Automobile Manufacturers 4.95% 3.16% Alphabet, Inc. Class C Internet Software & Services 4.92% 5.28% Alphabet, Inc. Class A Internet Software & Services 4.86% 5.06% Microsoft Corp. Systems Software 4.51% 4.38% Autodesk, Inc. Application Software 3.60% 3.34% Alibaba Group Holding Ltd. sponsored ADR Internet Software & Services 2.92% -- Cognizant Technology Solutions Corp. Class A It Consulting & Other Services 1.96% 0.49% Electronic Arts, Inc. Home Entertainment Software 1.54% 1.01% 10 Largest Holdings as a % of Net Assets 46.32% 43.97% 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. MARKET-SEGMENT DIVERSIFICATION Market Segment Six Months Ago Internet Software & Services 25.76% 21.72% Semiconductors 11.10% 13.86% Technology Hardware, Storage & Peripherals 10.12% 11.38% Application Software 9.83% 6.27% Systems Software 5.88% 5.95% Automobile Manufacturers 4.95% 3.16% Semiconductor Equipment 4.83% 4.14% Home Entertainment Software 4.70% 4.36% Electronic Equipment & Instruments 3.73% 4.95% Data Processing & Outsourced Services 3.11% 2.04% Other 13.20% 19.44% ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 71.71% 64.53% International Equities 25.50% 32.95% Developed Markets 11.39% 17.97% Emerging Markets 13.66% 14.45% Tax-Advantaged Domiciles 0.45% 0.53% Bonds 0.00% 0.00% Cash & Net Other Assets 2.79% 2.52% 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 August 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Select Technology Gross Expense Ratio: 0.77% % 39.56% 40.97% 18.94% 19.13% 12.27% S&P 500 Index 5.65% 11.93% 16.23% 9.54% 14.34% 7.61% MSCI US IMI Information Technology 25/ % 25.27% 30.05% 16.04% 17.49% 11.20% Morningstar Fund Technology 15.03% 25.16% 28.35% 14.46% 17.65% 9.95% % Rank in Morningstar Category (1% = Best) % 16% 35% 11% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 07/14/ 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 technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions 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. 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. 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. 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 US IMI Information Technology 25/50 Index is a modified market-capitalization-weighted index of stocks designed to measure the performance of Information Technology companies in the MSCI U.S. Investable Market 2500 Index. The MSCI U.S. Investable Market 2500 Index is the aggregation of the MSCI U.S. Large Cap 300, Mid Cap 450, and Small Cap 1750 Indices. 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. 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 7

8 Manager Facts Charlie Chai 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. Chai manages Fidelity Advisor Technology Fund, VIP Technology, and Fidelity Select Technology. Additionally, he co-manages Fidelity Series Broad Market Opportunities Fund, Fidelity Stock Selector All Cap Fund, and Fidelity Advisor Stock Selector All Cap Fund. Prior to assuming his current responsibilities, Mr. Chai managed Select Communications Equipment and Fidelity Advisor Communications Equipment Fund. Previously, Mr. Chai worked as an analyst in the Equity Research department covering a variety of stocks, including department store and specialty apparel, life insurance, trucking, airfreight, and select auto parts. He has been in the investments industry since joining Fidelity in Mr. Chai earned his bachelor of arts degree in economics and math from Dartmouth College. He is also a CFA charterholder. 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 Technology Gross Expense Ratio: 0.77% % 20.11% 19.06% 11.65% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 07/14/ 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.