Fidelity New Markets Income Fund

Transcription

1 QUARTERLY FUND REVIEW AS OF DECEMBER 31, 2017 Fidelity New Markets Income Fund Investment Approach Fidelity New Markets Income Fund is an emerging-markets (EM) bond strategy that offers dedicated exposure to sovereign debt of EM nations around the world. The fund focuses primarily on U.S.-dollar-denominated sovereign debt, and to a lesser extent on EM corporate bonds. Our investment approach in managing the fund begins with top-down research, rooted in macroeconomic and sovereign analysis, to help identify undervalued sovereign bonds with positive catalysts. We supplement our macro perspective with in-depth fundamental analysis, working in concert with Fidelity's global research team. Our extensive experience investing in emerging markets and deep research capabilities support us in our efforts to take advantage of long-term trends and short-term opportunities. PERFORMANCE SUMMARY Cumulative 3 Month YTD 1 Year Annualized 3 Year 5 Year 10 Year/ LOF 1 Fidelity New Markets Income Fund Gross Expense Ratio: 0.86% % 10.14% 10.14% 8.19% 4.34% 7.70% J.P. Morgan Emerging Markets Bond Global 0.54% 9.32% 9.32% 6.84% 3.75% 7.06% Morningstar Fund Emerging Markets Bond 0.71% 10.25% 10.25% 5.96% 2.82% 6.32% % Rank in Morningstar Category (1% = Best) % 13% 17% 12% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 05/04/ 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): John Carlson Trading Symbol: FNMIX Start Date: May 04, 1993 Size (in millions): $6, Morningstar Category: Fund Emerging Markets Bond Fixed income investments entail interest rate risk (as interest rates rise bond prices usually fall), the risk of issuer default, issuer credit risk and inflation risk. Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. The fund may have additional volatility because it can invest a significant portion of assets in securities of a small number of individual issuers. Not FDIC Insured May Lose Value No Bank Guarantee

2 Emerging-Markets Bond Market Review For the three months ending December 31, 2017, emergingmarkets debt gained 0.54%, as measured by the J.P. Morgan Emerging Markets Bond Global. After a very strong rally that began in late 2016 and continued into November 2017, emerging-markets debt achieved only a modest gain for the fourth quarter, partly due to weak results from some of the index's larger-weighted credit issuers. The big story this quarter was Venezuela. Venezuelan bonds tumbled in early November after President Maduro announced the cash-strapped nation would look to restructure its debt. Already trading at a distressed level, Venezuela bonds fell even further later that month when credit-rating firms announced the nation was in default because it missed interest payments on two government bonds. Venezuela-issued debt returned about -28% for the full three months, by far the biggest decline among the index's country components. Among other sizable index members, China, Mexico and Turkey each achieved only a slight gain for the fourth quarter. China's debt market mostly consists of shorter-maturity, higher-quality bonds that underperformed amid the rising-rate environment. Mexico bonds were weighed down by tensions concerning the North American Free Trade Agreement (NAFTA) and a potential populist shift in its leadership. Lastly, Turkey's debt market was hampered by concern about government pressure on its central bank and worsening relations with the United States. Conversely, Ecuador achieved the strongest gain this quarter, rising 9%. Oil is a major export for the country, and rising oil prices in the fourth quarter boosted its debt market. Several very small index components also achieved relatively solid gains this quarter, including Angola (+9%). Investors were bullish on Angola's President Joao Lourenco, who took office in September and quickly made sweeping changes, including replacing the heads of the central bank, state-oil company and diamond firm, and also opened up the country's telecom businesses to foreign bidders. El Salvador (+6%) and Gabon (+6%) were other small index members to outperform. Meanwhile, Argentina and Brazil were two larger index constituents that also outperformed. Argentina advanced 3%, as candidates allied with President Macri swept Congressional elections in October, paving the way for the president's reform agenda. Brazilian debt rose about 2% amid the country's continued economic improvement after a deep recession the past several years. EMERGING-MARKETS SPREAD AND AVERAGE YIELDS (BASIS POINTS*) Basis Points 1,800 1,500 1, /31/97 12/31/99 12/31/01 12/31/03 12/31/05 12/31/07 12/31/09 12/31/11 12/31/13 12/31/15 12/31/17 THREE-MONTH COUNTRY RETURNS Total Return Top 5 Ecuador 9.14% Angola 8.51% El Salvador 5.67% Gabon 5.63% Ghana 5.45% Bottom 5 Venezuela % Belize -6.69% Tajikistan -1.48% Lebanon -1.11% British Virgin Islands -0.41% Source: FMRCo. EM Yield Spread *1 basis point = 0.01%. Source: J.P. Morgan as of 12/31/17. Yield spread is represented by the strip spread of the J.P. Morgan Emerging Markets Bond Global. The average spread is calculated from 12/31/97 through the most recent period. 2 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

3 Performance Review For the quarter, the fund gained 0.51%, roughly in line with the 0.54% result of the benchmark J.P. Morgan Emerging Markets Bond Global. The fund's performance versus the benchmark was hampered most by an overweighting in Venezuela by far the biggest relative detractor, given the country's November selective default. While the timing of delayed/non-payment was a modest surprise, we had been overweighted with anticipation of this event on the basis of relative value, and remained overweighted at year-end. Very little else notably detracted from relative performance this period, although security selection in Turkey was negative. Of note, we built our exposure to Turkey this quarter, given improving valuation. We'll also mention our non-benchmark position in U.S. Treasuries, concentrated in 30-year holdings, as a modest detractor. The fund held U.S. Treasury bonds as a duration-management tool, a liquidity store, a proxy for higherquality emerging-markets sovereign debt and a partial hedge against the impact of market volatility. We exited this position on our expectation of higher interest rates. In terms of contributors, We owned local South African currency bonds that outperformed as the currency rallied on optimism about the country's new president and the potential for meaningful reform. An overweighting in Ghana also helped, as the country sold off more than $1 billion of long-term bonds to help restructure its high public debt. In August 2017, Ghana was granted a one-year extension of the International Monetary Fund's credit-facility program to help deal with budget deficit, inflation and volatile local currency. An overweighting in Ukraine was another plus. Our investments in Ukrainian GDP (gross domestic product) warrants proved a notable positive. Unlike traditional debt securities, which are linked to interest rates, GDP warrants are tied to the economic growth of the issuer. An underweighting in China, which underperformed, also lifted relative performance. We added to the fund's stake in both Ukraine and China this period, as we saw long-term growth potential in both of these bond markets. Outlook and Positioning The global backdrop has proven very supportive of emergingmarkets debt. Stimulus in China has helped propel the local and regional economy, while European and Japanese central banks have continued on the path of monetary easing. In the U.S., investors have been satiated by a combination of the Federal Reserve's methodical pace, the best corporate-profit growth in more than five years and expectations for market-friendly legislation. In healthy fashion, interest rates have risen and yield spreads have tightened, reflecting this improved backdrop. The recent outperformance of emerging-markets debt and tighter spreads have, however, had implications for how we view asset allocation among our main investment choices. We need to be mindful that market volatility is generally quite low, and that yield spreads offer less protection against unforeseen events relative to this time last year. Spreads may not widen and could tighten, but the environment is not as conducive to outsized portfolio positions as in the recent past, in our view. As a result, over the course of 2017, we took steps to modify the portfolio to maintain positions we expect to have the potential to generate alpha or excess return but to reduce relativeweighting differentials in constituents for which our conviction is not as strong, including among EM corporate bonds, a nonbenchmark sector. Importantly, we do not expect an imminent departure from the strong market environment, and we continue to see outperformance potential from the portfolio's overweighted (Ukraine and Lebanon, for example) and underweighted (Philippines and Indonesia, for example) positions. From a global perspective, we believe two of the most important factors for emerging-markets debt U.S. interest rates and the price of oil should remain supportive. The Fed will likely continue to normalize monetary policy against a backdrop of stable or improving domestic and global growth, while continued improvement in the supply-demand balance for oil should be positive for prices. LARGEST CONTRIBUTORS VS. BENCHMARK Average Contribution (basis points)* South Africa -0.54% 8 Ghana 1.36% 7 Ukraine 3.74% 5 Nigeria 0.65% 4 China -7.47% 4 *1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Average Contribution (basis points)* Venezuela 1.42% -37 Turkey 0.43% -5 Uruguay -0.96% -3 Chile -2.30% -3 Colombia -2.23% -2 *1 basis point = 0.01%. 3 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

4 LARGEST OVERWEIGHTS BY COUNTRY Ukraine 6.30% 2.01% 4.29% 1.69% Lebanon 4.76% 2.02% 2.74% 0.26% Saudi Arabia 2.06% % -0.74% Brazil 6.08% 4.57% 1.52% -0.43% Ghana 1.73% 0.35% 1.38% 0.03% LARGEST UNDERWEIGHTS BY COUNTRY China 1.91% 8.67% -6.76% 0.68% Philippines % -3.48% 0.06% Mexico 9.23% 12.46% -3.23% -0.33% Indonesia 5.03% 8.03% -3.00% 1.03% Chile % -2.31% -0.06% 3-YEAR RISK/RETURN STATISTICS Beta Standard Deviation 6.63% 5.46% Sharpe Ratio Tracking Error 2.23% -- Information Ratio R-Squared CREDIT-QUALITY DIVERSIFICATION Credit Quality U.S. Government 0.00% 0.00% 0.00% -5.89% AAA 0.00% 0.00% 0.00% 0.00% AA 1.66% 0.75% 0.91% 0.24% A 2.72% 18.97% % -0.12% BBB 19.78% 35.54% % 0.28% BB 21.47% 21.60% -0.13% 0.14% B 26.64% 15.77% 10.87% 0.86% CCC & Below 11.08% 4.69% 6.39% 1.87% Short-Term Rated 0.00% 0.00% 0.00% 0.00% Not Rated/Not Available 7.65% 2.68% 4.97% 0.69% Cash & Net Other Assets 9.00% 0.00% 9.00% 1.93% 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. Credit ratings for a rated issuer or security are categorized using Moody's Investors Service (Moody's). If Moody's does not publish a rating for a security or issuer, then the Standard & Poor's Ratings Services (S&P) rating is used. When S&P and Moody's provide different ratings for the same issuer or security, the Moody's rating is used. Securities that are not rated by these NRSROs (e.g. equity securities) are categorized as Not Rated. All U.S. government securities are included in the U.S. Government category. The table information is based on the combined investments of the fund and its pro-rata share of any investments in other Fidelity funds. CHARACTERISTICS Duration 6.47 years 6.93 years 30-Day SEC Yield 4.42% Day SEC Restated Yield Net Asset Value $ For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

5 ASSET ALLOCATION Asset Class Sovereign Bonds 64.44% 69.96% -5.52% 5.43% USD 61.47% 69.96% -8.49% 6.07% Local 2.47% 0.00% 2.47% -0.39% G7 FX 0.50% 0.00% 0.50% -0.25% Agency Bonds 22.28% 30.04% -7.76% -0.35% Corporate Bonds 2.22% 0.00% 2.22% -1.95% Derivatives 0.00% 0.00% 0.00% 0.00% Equities 1.60% 0.00% 1.60% 0.94% Loans 0.00% 0.00% 0.00% 0.00% Municipal Bonds 0.00% 0.00% 0.00% 0.00% U.S. Treasury Bonds 0.00% 0.00% 0.00% -5.89% Rights & Warrants 0.41% 0.00% 0.41% -0.01% Cash & Net Other Assets 9.05% 0.00% 9.05% 1.83% 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. 10 LARGEST COUNTRY WEIGHTS United States 9.12% Mexico 9.09% Turkey 7.08% Ukraine 6.06% Brazil 5.89% Argentina 5.65% Indonesia 4.92% Lebanon 4.72% Russia 3.74% Venezuela 2.75% 10 Largest Countries as a % of Net Assets 59.02% Total Number of Holdings 319 The 10 largest country weights 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. CURRENCY DIVERSIFICATION Currency U.S. Dollar 96.39% % -3.61% 0.18% Brazilian Real 0.70% % 0.44% South African Rand 0.68% % 0.39% Indonesian Rupiah 0.61% % -0.01% European Monetary Unit (Euro) 0.51% % -0.24% Chinese Yuan 0.41% % 0.41% Nigerian Naira 0.33% % 0.29% Hong Kong Dollar 0.16% % 0.16% Uruguayan Peso 0.12% % -0.04% Egyptian Pound 0.09% % -0.05% 5 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

6 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 Duration is a measure of a security's price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security's interest payments in addition to the amount of time until the security reaches maturity, and also takes into account certain maturity shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration generally can be expected to be more sensitive to interest rate changes than a fund with a shorter average duration. 30-day SEC Yield is a standard yield calculation developed by the Securities and Exchange Commission for bond funds. The yield is calculated by dividing the net investment income per share earned during the 30-day period by the maximum offering price per share on the last day of the period. The yield figure reflects the dividends and interest earned during the 30-day period, after the deduction of the fund's expenses. It is sometimes referred to as "SEC 30-Day Yield" or "standardized yield". 30-Day SEC Restated Yield is the fund's 30-day yield without applicable waivers or reimbursements, stated as of month-end. Net Asset Value is the dollar value of one share of a fund; determined by taking the total assets of a fund, subtracting the total liabilities, and dividing by the total number of shares outstanding. % 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. Effective 12/18/17, the fund's redemption fee has been removed. 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. J.P. Morgan Emerging Markets Bond Global tracks total returns for the U.S. dollar-denominated debt instruments issued by Emerging Market sovereign and quasi-sovereign entities, such as Brady bonds, loans, and Eurobonds. RANKING INFORMATION 2018 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. 6

7 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