Fidelity Select Brokerage and Investment Management Portfolio

Transcription

1 Fidelity Select Brokerage and Investment Management Key Takeaways The fund gained 7.32% for the semiannual reporting period ending August 31, This result outpaced the 6.84% return of the MSCI U.S. IMI Capital Markets 5% Capped Linked Index and the 5.65% advance of the broad-based S&P 500. Stock picks in the financial exchanges & data group provided the biggest boost to performance versus the MSCI industry index. Much of the benefit here came from our overweighting in CBOE Holdings, owner of the Chicago Board Options Exchange. By contrast, security selection in the asset management & custody banks group detracted from our relative result, largely due to underweightings in strong performers T. Rowe Price Group and Bank of New York Mellon. Manager Dan Dittler plans to continue focusing his bottom-up security selection on higher-quality companies that he believes have sustainable competitive advantages and are not dependent on tax, regulatory and interest rate changes. 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). Also, Select Brokerage and Investment Management will broaden its investment focus to include companies involved in providing data and decision support tools to the capital markets industry. 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 Daniel Dittler Fund Facts Trading Symbol: Daniel Dittler Manager FSLBX Start Date: July 29, 1985 Size (in millions): $ Investment Approach Fidelity Select Brokerage and Investment Management is an industry-based, equity-focused strategy that seeks to outperform its benchmark through active management. We believe that stocks of high-quality financial companies exhibiting persistent growth and purchased at reasonable prices can outperform the market over time. Our investment approach relies on fundamental analysis to help uncover divergences between expectations and underlying growth potential, presenting an opportunity to generate excess returns. In our search for companies that exhibit potential for sustainable growth, we look for business catalysts such as new product offerings, new geographies, improving operational efficiencies or expanding returns on capital. Stock selection and idea generation come from bottom-up research that leverages Fidelity's deep and experienced global financials team. We consider attractive financial stocks outside of the benchmark that offer the potential for favorable risk-adjusted returns. Sector and industry strategies could be used by investors as alternatives to individual stocks for either tactical- or strategic-allocation purposes. Q: Dan, how did the fund perform for the sixmonth fiscal period ending August 31, 2017 The fund gained 7.32%, modestly ahead of the 6.84% return of the MSCI U.S. IMI Capital Markets 5% Capped Linked Index. Our result handily beat the 0.72% return of the Morningstar Financials peer group average and also outpaced the 5.65% advance of the broad-based S&P 500. Looking back a full 12 months, the fund's 25.25% gain was roughly in line with the 25.59% return of the MSCI industry index. Over the same period, we topped the S&P 500, which advanced 16.23%, as well as the peer average. Q: Please describe the backdrop for capital markets stocks over the past six months. A rising stock market was the primary driver for the MSCI industry index's return. Performance was especially strong in the financial exchanges & data group, which returned nearly 13% for the six-month period, bolstered by the strong performance of certain credit-ratings agencies. The asset management & custody banks group also posted a strong advance, as equity-market appreciation, continued low interest rates and below-average volatility helped boost asset values and inflows. However, within the group, we saw wide dispersion, with a number of sizable index components posting mid-teen or higher returns for the period and others ending in negative territory. By contrast, the investment banking & brokerage segment lagged the index this period, as most capital-markets activity mergers and acquisitions (M&A), initial public offerings and trading volumes experienced double-digit declines, with policy uncertainty under the new Trump administration and low volatility slowing activity. Q: Given this backdrop, what factors helped the fund outperform the industry index Security selection was the primary driver. I look for stocks that I believe have long-term earnings power and an estimated intrinsic value (essentially what the company is worth) that is, in my opinion, materially higher than what the current market value reflects. My bias is toward firms 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 that I think have the most sustainable competitive advantages and positioning. During the past six months, the fund benefited from this approach, as higher-quality companies with durable revenue and earnings-growth prospects tended to be leaders within the industry index. As always, I tried to neutralize the impact of shifting expectations for interest rates, the sustainability of the stock-market rally and the prospects for market volatility. This ongoing effort to balance the effect of critical macroeconomic factors on the portfolio allowed security selection to be the biggest driver of relative performance. Q: Which segments and stocks stood out Versus the industry index, stock picks in the financial exchanges & data group gave the biggest boost by far, thanks in large part to our overweighting in CBOE Holdings, parent of the Chicago Board Options Exchange. Our largest position, CBOE's stock rose about 30% the past six months, buoyed by growing investor recognition of the company's multiple avenues for revenue and profit growth over the next three to five years. In March, CBOE acquired Kansas-based competitor Bats Global Markets (a prior holding). Cost-synergy opportunities and option and futures volume-growth potential from Bats' significant European presence accelerate CBOE's earnings-growth outlook. We also gained ground in the investment banking & brokerage group, largely through our underexposure to index components that posted notable declines for the period. We benefited, for example, from having a sizable underweighting, on average, in boutique M&A advisor Greenhill & Co. because we didn't think the company had enough of a competitive advantage to differentiate itself from its peers. The stock posted a -47% return in the index this period, hurt by a sharp decline in M&A activity, expectations that higher interest rates would make deals more costly and anticipation that tax reform could eliminate the corporate-tax deduction for interest-rate expenses. Greenhill was not in the portfolio at period end. Q: How did the asset management & custody banks group affect relative performance It detracted due entirely to disappointing stock selection. We were underexposed to some winning index components and were hurt by untimely trading in some others. Individual detractors included fund manager T. Rowe Price, a large underweighting that I had eliminated from the fund by period end. I thought the firm would be pressured by secular challenges, including the shift from active to passive management and aging demographics that I worried could increase asset outflows. Plus, I was concerned about the company's limited distribution presence in Europe. However, the stock rose 20% in the index, benefiting as the equity-market rally helped asset outflows flip to modest inflows, in turn driving a resumption of earnings growth. We also lost ground from our underweighting and untimely trading in global asset manager and servicing company Bank of New York Mellon. The stock surged on news that the company had hired a new CEO, bolstering investors' hopes for accelerated revenue and earnings growth. I thought a turnaround could be difficult and chose to wait to hear more about the new CEO's strategy before revisiting our underweighting. Q: Were there any standouts in this group Yes. Our out-of-index stake in alternative asset manager Apollo Global Management was a top contributor. The stock rose 34% this period, buoyed by a rising equity market and the firm's controlling stake in Athene Holdings, a Bermuda-based fixed-rate annuities firm. Apollo serves as an investment advisor for Athene's growing business, bolstering the former's fee-related earnings and giving it a unique and durable competitive advantage, in my view. Q: What's your outlook for the industry, Dan I generally expect further appreciation for capital marketsrelated stocks to depend on successful U.S. corporate tax reform, financial deregulation and rising interest rates. However, I've tried to focus the portfolio on businesses that I think can meaningfully improve their earnings power regardless of what happens at the macroeconomic level. I'm especially interested in companies that have gone through acquisitions that considerably strengthen the combined entity's competitive positioning and/or offer the prospect of accelerating revenue and earnings growth beyond what the market currently anticipates. Over the period, I reduced our cash position as well as our stake in the investment banking & brokerage group. I redeployed the funds into opportunities in the financial exchanges & data segment, reflecting my optimistic outlook for revenues and earnings growth here. 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 Dan Dittler on targeting scale and innovation in the brokerage and investment management group: "The MSCI Capital Markets index is made up largely of mature industries, with the asset management & custody banks group representing about 45% of the index and investment banking & brokerage, roughly 31%. Going forward, I think the most likely winners will be those firms that can increase their share of what will be either a static or shrinking pie. "My belief is that the firms that will come out ahead are those that can capitalize on the competitive advantages of scale and innovation. I think such companies will be rewarded with more of their customers' business and hence marketshare gains. By contrast, I expect firms with undifferentiated products that lack the scale to lower costs or invest in innovation and new products to lose favor with customers and see declining market share. "As I see it, companies with the greatest scale will be those that are most capable of absorbing increasing regulatory cost burdens and ongoing fee pressure, while simultaneously being able to meet increasing demand for new and differentiated products that help solve customer problems on a global basis. The willingness to innovate is key and requires a culture that embraces change by listening to customers and acting quickly. "At August 31, the fund has sizable overweightings in a number of firms that fit these criteria, including asset managers BlackRock and Apollo Global Management, online broker TD Ameritrade Holding, financial exchange CBOE Holdings and credit-rating firm S&P Global. Together with a large but slightly underweight position in Charles Scwab, these six positions represented about 30% of our assets at period end." Holding CBOE Holdings, Inc. Apollo Global Management LLC Class A Greenhill & Co., Inc. Goldman Sachs Group, Inc. Piper Jaffray Companies * 1 basis point = 0.01%. Market Segment Financial Exchanges & Data Asset Management & Custody Banks Investment Banking & Brokerage Investment Banking & Brokerage Investment Banking & Brokerage Average Relative LARGEST DETRACTORS VS. BENCHMARK Holding T. Rowe Price Group, Inc. Bank of New York Mellon Corp. IntercontinentalExchan ge, Inc. E*TRADE Financial Corp. Ameriprise Financial, Inc. * 1 basis point = 0.01%. Market Segment Asset Management & Custody Banks Asset Management & Custody Banks Financial Exchanges & Data Investment Banking & Brokerage Asset Management & Custody Banks Relative Contribution (basis points)* 4.87% % % % % 23 Average Relative Relative Contribution (basis points)* -2.89% % % % % 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 CBOE Holdings, Inc. Financial Exchanges & Data 6.66% 4.82% BlackRock, Inc. Class A Asset Management & Custody Banks 5.80% 6.00% S&P Global, Inc. Financial Exchanges & Data 5.56% 5.22% Morgan Stanley Investment Banking & Brokerage 5.33% 5.99% State Street Corp. Asset Management & Custody Banks 4.90% 2.19% IntercontinentalExchange, Inc. Financial Exchanges & Data 4.87% 1.94% TD Ameritrade Holding Corp. Investment Banking & Brokerage 4.79% 4.05% CME Group, Inc. Financial Exchanges & Data 4.56% 4.67% Invesco Ltd. Asset Management & Custody Banks 4.14% 3.14% Charles Schwab Corp. Investment Banking & Brokerage 4.12% 4.60% 10 Largest Holdings as a % of Net Assets 50.75% 46.26% 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 Asset Management & Custody Banks 39.39% 39.43% Investment Banking & Brokerage 31.36% 33.17% Financial Exchanges & Data 29.12% 24.26% ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 95.47% 97.13% International Equities 4.40% 0.00% Developed Markets 4.40% 0.00% Emerging Markets 0.00% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 0.13% 2.87% 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 Brokerage and Investment Management Gross Expense Ratio: 0.82% % 12.99% 25.25% 3.95% 13.74% 4.41% S&P 500 Index 5.65% 11.93% 16.23% 9.54% 14.34% 7.61% MSCI US IMI Capital Markets 5% Capped Linked Index 6.84% 12.54% 25.59% 5.39% 15.15% 1.95% Morningstar Fund Financial 0.72% 4.97% 21.66% 9.02% 14.67% 3.43% % Rank in Morningstar Category (1% = Best) % 90% 68% 39% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 07/29/ 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 brokerage and investment management industry can be significantly affected by stock and bond market activity, changes in regulations, brokerage commission structure, and a competitive environment combined with the high operating leverage inherent in companies in this industry. 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. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. S&P 500 is a market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. MSCI US IMI Capital Markets 5% Capped Linked Index is a modified market capitalization-weighted index of stocks designed to measure the performance of Capital Markets companies in the MSCI US Investable Market 2500 Index. Index returns shown for periods prior to January 1, 2010 are returns of the MSCI US Investable Market Capital Markets Index. 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. 7

8 Manager Facts Daniel Dittler is a research analyst 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, Mr. Dittler is responsible for research and analysis of the asset management, exchanges, and online broker sectors. In this capacity he also manages the Fidelity Select Brokerage and Investment Management Fund (since 2015). Prior to joining Fidelity in 2008, Mr. Dittler worked as an equity research analyst intern in 2007 at Sirios Capital. Previously, he was an equity research associate analyst at Lehman Brothers from 2002 to 2004, an equity research associate at Credit Suisse First Boston from 1999 to 2002 and a financial analyst at Jones Lang Lasalle from 1996 to Mr. Dittler has been in the investments industry since Mr. Dittler earned his bachelor of business administration degree majoring in finance from the University of Notre Dame and his master of business administration degree with concentrations in finance, corporate strategy, and economics from the University of Chicago Booth School of Business. He is also a Chartered Financial Analyst (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 December 31, Annualized 5 10 / LOF 1 Select Brokerage and Investment Management Gross Expense Ratio: 0.82% % 7.77% 14.42% 5.11% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 07/29/ 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.