Fidelity Select Multimedia Portfolio

Transcription

1 Fidelity Select Multimedia Key Takeaways For the semiannual reporting period ending August 31, 2017, the fund gained 4.29%, well ahead of the -0.82% result of the MSCI U.S. IMI Media 25/50 Index but behind the 5.65% return of the broadly based S&P 500. Traditional media print, television and radio experienced weakness this period as audiences continued to shift away from linear viewing on traditional platforms. TV-advertising revenue growth slowed as well, hampering many media stocks. Versus the MSCI industry index, Manager Nidhi Gupta's stock choices delivered the biggest boost to relative performance, led by stock selection in movies & entertainment and the out-ofindex internet software & services group. Indeed, the fund logged no notable detractions among industry groups. On a stock basis, a non-index stake in social-media platform Facebook contributed most. Conversely, underweighting several cable & satellite names dragged on the fund's relative result. At period end, Nidhi is positioning the fund for a continuation of the shift away from traditional media toward online streaming. She is also anticipating continued disruption across media companies as they monetize content via new-media platforms. 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 Nidhi Gupta Fund Facts Trading Symbol: Nidhi Gupta Manager FBMPX Start Date: June 30, 1986 Size (in millions): $ Investment Approach Fidelity Select Multimedia is an industry-based, equity-focused strategy that seeks to outperform its benchmark through active management. We believe that finding undervalued stocks in the multimedia industry with the highest long-term earnings growth potential should drive outperformance. Our investment process relies on identifying companies with above-average long-term earnings growth driven by: the creation and control of content; the distribution of that content through "new media" platforms; and efficient capital allocation. We use fundamental analysis, supported by Fidelity's deep and experienced global consumer team, to identify stocks that we believe have the greatest dislocation between long-term earnings-growth potential and valuation. As a result, the fund tends to be skewed toward growth-oriented stocks. Sector and industry strategies could be used by investors as alternatives to individual stocks for either tactical- or strategic-allocation purposes. Q: Nidhi, how did the fund perform for the six months ending August 31, 2017 The fund gained 4.29% for the reporting period, well ahead of the -0.82% result of the MSCI U.S. IMI Media 25/50 Index, but behind the 5.65% return of the broad-based S&P 500. The fund also outperformed its peer group average. Looking back a full year, the fund outperformed the MSCI index, S&P 500 and its peer group average. Q: What was the investment environment like for media stocks the past six months We saw many of the trends I've addressed in previous reports continuing to play out during the period. Traditional media print, television and radio experienced weakness as audiences migrated from linear viewing on traditional platforms (watching programs at their time of initial broadcast) to the internet and on-demand services. Television ratings fell as viewership shifted to streaming services such as Amazon Prime Video, Hulu and fund holding Netflix. As a result, TV-ad revenue growth slowed. TV-subscription revenue growth also slowed, as more consumers "cut the cord" to take advantage of lower-cost streaming services. Q: Given the investment environment, did the fund perform according to your expectations Yes. Because the MSCI industry index includes many traditional-media names in broadcasting and publishing, it was no surprise that the index lagged the broader market. At the same time, I maintained my emphasis on so-called "new media" over traditional media. As traditional media continued its secular decline and new-media platforms gained further traction, this investment strategy ultimately helped drive the fund's strong absolute and relative results. Looking longer term, I tend to focus on companies creating and controlling content, distributing that content through new-media platforms, and building a direct relationship with the consumer. Within these trends, I try to identify 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 media stocks with the greatest disconnect between what the market is currently paying and what I think the longterm earnings power of the business is really worth. Q: What worked this period Overall, stock selection was the biggest driver of the fund's relative performance this period. Our stock choices in internet software & services, which is not part of the MSCI index, were among the most beneficial. Indeed, our top individual contributor came from the internet software & services group: social-media platform operator Facebook. This company has been among the biggest beneficiaries of the trend toward new media, falling directly in line with my investment focus. Facebook has continually reported growth in active users of its services, as well as strong demand for mobile advertising, helping to lift the stock's price 27% this period. Elsewhere, our substantial overweighting in cable provider Charter Communications helped. The stock gained 23% for the six months, and it ended the period as one of the fund's largest holdings. Among content distributors, I thought Charter was well-positioned with an opportunity to grow within the markets the company serves. Additionally, synergies from the May 2016 acquisition of Time Warner Cable have buoyed Charter's revenue and helped it contain costs. Given its strength, Charter has been attracting attention from potential buyers, indicating the company could be an acquisition target. From my perspective, owning Charter offers multiple ways to add value. An out-of-index stake in multimedia giant Apple provided another boost. Apple is at the center of the movement from traditional to new media, offering a mobile platform and applications that support video, music and other media, allowing Apple numerous ways to monetize its capabilities. The stock rose strongly in late July and through August as we drew closer to the September release of the iphone 8, finishing the six-month period with a 21% gain overall. Q: What else contributed Stock picking in movies & entertainment was another driver of fund results. Here, largely avoiding movie-theater chain AMC Entertainment proved advantageous. In general, shares of theaters have underperformed as studios have proposed moving directly to home video more quickly than in the past, limiting revenue for the theater operators. This period, AMC faced not only that challenge but also weaker-than-expected earnings, which the firm announced in early August. Subsequently, AMC's share price sank further, ending the six-month period with a -57% result. Q: What detracted Our slightly underweighted stake in cable giant Comcast dragged modestly on our relative result. I consider Comcast as among the highest-quality content distributors, along with fund holding Charter Communications. During the period, the stock performed well, rising 9%, propelled by strong profit and revenue announcements in late July. While I remained optimistic about Comcast, I had grown concerned about the rising cost of distributing content and growing competition in the video distribution industry, and their effect on long-term earnings. Given my conviction in Charter's prospects, I chose to underweight Comcast and establish a sizable overweighting in Charter. As a result, the fund missed out on some of Comcast's strength this period, though Comcast remained our largest holding, at roughly 22% of fund assets, at period end. Also in cable & satellite, avoiding Cable One, a very small index component, detracted slightly. The company posted strong financial results in July, helping buoy its stock price. Q: What is your outlook as of August 31 True to the current trend, I believe audiences will continue to shift their time and attention from traditional media to the internet. Since advertising dollars follow audiences, I think companies that distribute content through new-media platforms are best-positioned to monetize their audiences. Looking forward, I expect that advertising-driven internet companies such as Facebook and Google (Alphabet), both fund holdings at period end, will continue to pull ahead of the overall media sector as advertising budgets continue to shift from print, radio and traditional TV to digital. In the same vein, I intend to continue avoiding segments of the media market I see as facing secular headwinds and that appear vulnerable to disruption. This reasoning led me to largely avoid many of the index's TV networks, print publishers, and radio and TV broadcasters. Within video, content consumption is becoming more fragmented over several consumer devices. Additionally, the advent of streaming technology has created an opportunity for content creators to directly access the consumer. Given these factors, I plan to stick to my investment strategy of emphasizing companies such as Lions Gate that can create their own content, as well as those that have a direct relationship with the consumer, such as Netflix. Both are among our largest overweighted stocks at period end. 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 Manager Nidhi Gupta on disruption in media delivery: "In the traditional-media distribution model, studios create content and mark it up to sell to media companies. Media companies package the content into networks (i.e., channels) such as CBS, FOX, TNT and FX. Then, they sell those networks at a markup to distributors like fund holdings Comcast and Time Warner Cable, who in turn package it into double- or triple-play bundles adding broadband and/or phone services mark it up some more, and sell it to the end consumer. "The advent of streaming technology is allowing for the emergence of a greater number of wholesalers, such as media companies that package content into networks, and retailers of content, including distributor companies such as Comcast. "However, the big event this period was the announcement of Disney's plans to launch a subscription-based streaming service for sportsnetwork ESPN in This plan should allow subscribers to directly interact with Disney by giving them the option to buy the streaming service rather than upgrading their cable or satellite package with their distributors. "This situation illustrates the pressure traditionalmedia companies are under to match lower-cost streaming options in the market. They now are effectively disrupting themselves to stay relevant and compete with services such as Netflix, Hulu and Amazon Prime. "As we move forward, I think we will see more of this type of disruption, and I believe it's something that will be at the forefront of investors' minds when they look at this industry." Holding Facebook, Inc. Class A Charter Communications, Inc. Class A Apple, Inc. AMC Entertainment Holdings, Inc. Class A Alphabet, Inc. Class A * 1 basis point = 0.01%. Market Segment Internet Software & Services Average Relative Relative Contribution (basis points)* 3.41% 87 Cable & Satellite 3.67% 78 Technology Hardware, Storage & Peripherals Movies & Entertainment Internet Software & Services LARGEST DETRACTORS VS. BENCHMARK Holding Liberty Global PLC Class A Market Segment 2.28% % % 37 Average Relative Relative Contribution (basis points)* Cable & Satellite -1.21% -31 Comcast Corp. Class A Cable & Satellite -1.08% -22 Cable One, Inc. Cable & Satellite -0.80% -17 Cinemark Holdings, Inc. The New York Times Co. Class A * 1 basis point = 0.01%. Movies & Entertainment 1.42% -16 Publishing -0.56% 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 Comcast Corp. Class A Cable & Satellite 21.92% 19.18% The Walt Disney Co. Movies & Entertainment 18.74% 17.66% Charter Communications, Inc. Class A Cable & Satellite 8.85% 8.19% Time Warner, Inc. Movies & Entertainment 3.49% 5.03% Facebook, Inc. Class A Internet Software & Services 3.49% 3.06% Lions Gate Entertainment Corp. Class B Movies & Entertainment 3.13% 2.69% Twenty-First Century Fox, Inc. Class A Movies & Entertainment 3.12% 3.29% Sirius XM Holdings, Inc. Cable & Satellite 2.99% 2.55% Liberty Global PLC Class C Cable & Satellite 2.77% 4.73% Apple, Inc. Technology Hardware, Storage & Peripherals 2.57% 2.04% 10 Largest Holdings as a % of Net Assets 71.06% 69.52% 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 Cable & Satellite 42.22% 40.67% Movies & Entertainment 38.92% 40.48% Internet Software & Services 6.51% 5.59% Internet & Direct Marketing Retail 4.60% 1.87% Technology Hardware, Storage & Peripherals 2.57% 2.04% Broadcasting 2.48% 4.84% Advertising 1.34% 3.92% Publishing 0.01% 0.01% ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 92.65% 90.93% International Equities 5.99% 8.49% Developed Markets 5.99% 8.49% Emerging Markets 0.00% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 1.36% 0.58% 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 Multimedia Gross Expense Ratio: 0.82% % 13.02% 22.16% 8.15% 15.53% 11.00% S&P 500 Index 5.65% 11.93% 16.23% 9.54% 14.34% 7.61% MSCI US IMI Media 25/ % 6.61% 14.77% 6.01% 15.72% 10.67% Morningstar Fund Consumer Cyclical 3.55% 7.76% 10.02% 6.26% 12.57% 8.38% % Rank in Morningstar Category (1% = Best) % 44% 15% 10% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 06/30/ This expense ratio is from the prospectus in effect as of the date shown above and generally is based on amounts incurred during that fiscal year. This fund has a short term trading fee 0.75% for shares held less than 30 days. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com/performance, institutional.fidelity.com, or 401k.com. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. 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 multimedia industry can be significantly affected by the federal deregulation of cable and broadcasting, competitive pressures, and government regulation. 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/ 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. MSCI US IMI Media 25/50 Index is a modified market-capitalizationweighted index of stocks designed to measure the performance of Media 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. 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 Nidhi Gupta is a research analyst/portfolio manager at Fidelity Management & Research Company (FMRCo), the investment advisor for Fidelity's family of mutual funds. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, Ms. Gupta is responsible for coverage of U.S. internet and media stocks, and for making buy and sell recommendations on equity stocks for the firm's equity-based portfolio managers. She also manages Fidelity Select Multimedia (since 2013). Before joining Fidelity full-time as a research analyst in 2008, Ms. Gupta was a global equity research analyst intern at Fidelity in Previously, she was an analyst at Citadel Investment Group in Chicago from 2005 to 2006, responsible for coverage of U.S. and European large- and mid-cap pharmaceuticals. Prior to that, Ms. Gupta was a business analyst at McKinsey & Company from 2003 to She has been in the investments industry since joining the investment banking division of Goldman, Sachs & Company as a summer analyst in Ms. Gupta earned her bachelor of science degree in management science and engineering, and her bachelor of arts degree in international relations from Stanford University. She also earned her master of business administration degree from 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 December 31, Annualized 5 10 / LOF 1 Select Multimedia Gross Expense Ratio: 0.82% % 6.44% 13.73% 11.86% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 06/30/ 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.