Fidelity Growth Discovery Fund

Transcription

1 Fidelity Growth Discovery Fund Key Takeaways For the semiannual reporting period ending December 31, 2017, the fund's Retail Class shares advanced 11.97%, behind the 13.98% return the benchmark Russell 3000 Growth Index. Versus the benchmark, stock selection disappointed overall, especially in areas such as the industrials sector's capital goods segment, where our underweighting also hurt. The fund's cash position of around 4%, on average, also dragged on performance in a strongly rising market. An out-of-index stake in Realogy Holdings operating under such well-known brands as Coldwell banker, ERA Real Estate and Sotheby's was our largest individual relative detractor. Conversely, owning electronic-payment processors, including Square, contributed to the fund's relative result, as stocks in this niche benefited from positive industry dynamics and the move to credit- and online-based purchasing. After a strong rally, some growth stocks appear less attractive at year-end than they did earlier in 2017; however, the managers are finding new opportunities among large-cap bank stocks and other companies exposed to the housing market. On July 1, 2017, Asher Anolic became Co- Manager of the fund. Asher will serve as interim manager while Lead Manager Jason Weiner is on a leave of absence from January 1, 2018, through mid-june MARKET RECAP U.S. equities gained 11.42% for the second half of 2017, as the S&P 500 index rose steadily and closed the year just shy of an all-time high after a particularly strong three-month finish. The lone exception to the uptrend was a brief cooldown in August, when geopolitical tension escalated and uncertainty grew regarding legislation out of Washington. Nonetheless, consumer sentiment and other market indicators remained positive. In a stark reversal from 2016, growth-oriented stocks handily topped their value counterparts. Sector-wise, information technology fared best by a wide margin, rising about 18% amid strong earnings growth from several major index constituents. Financials (+14%) also stood out, riding the uptick in bond yields and a surge in banks (+15%) late in the year. Materials rose about 13%, spurred by increased demand, especially from China. Energy gained roughly 13% after finishing the year on an uptrend. Conversely, notable laggards included defensive-oriented categories, including utilities (+3%), consumer staples (+5%) and health care (+5%), that struggled amid investors' general preference for risk. Telecom services (+11%) fared better but still trailed the index. Lastly, rising interest rates held back real estate (+4%), while a weak result from media (+1%) hampered the broader consumer discretionary sector (+11%). Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Co- Manager Asher Anolic Jason Weiner Lead Manager Fund Facts Trading Symbol: FDSVX Asher Anolic Co-Manager Start Date: March 31, 1998 Size (in millions): $1, Investment Approach Fidelity Growth Discovery Fund is a diversified domestic equity strategy with a large-cap growth bias. Our core philosophy is that stock prices follow earnings growth, and the fund tends to focus on the fastest quartile of earnings growers: industry leaders and companies with proven track records. We employ a "go anywhere" investment approach, analyzing the entire value chain, which enables the fund to invest in broad themes and across market capitalizations. We look for undervalued growth stories and stocks with the potential for price-to-earnings (P/E) expansion, while avoiding names that have unreasonably high valuations or deteriorating business fundamentals. Q: Asher, how did the fund perform for the six months ending December 31, 2017 The fund's Retail Class shares advanced 11.97%, behind the 13.98% return of the benchmark. The fund also modestly trailed our peer group average the past six months. The fund performed much better for the trailing one-year period: it gained about 35%, handily surpassing both the benchmark and peer group average. Q: What accounted for the fund's relative underperformance the past six months We can't pinpoint any broad themes in terms of the fund's detractors versus the benchmark this period, as a number of idiosyncratic, or stock-specific, events held back returns for some of our investments. At the same time, certain of the benchmark components we chose to largely avoid outperformed for various reasons. Stock selection was disappointing overall, especially in areas like industrials' capital goods segment, where our underweighting also hurt. Picks in real estate, health care and technology dragged on relative performance as well. In all market sectors, Jason and I endeavor to identify what we consider the "best of the best": the fast growers, usually industry leaders benefiting from a combination of companies with business models or product innovations that reinforce their earnings growth. Our belief is companies that can grow earnings faster than the market average should outperform over time. Our out-of-index stake in Realogy Holdings offers up one example of this type of stock. Realogy operating under such well-known brands as Coldwell banker, ERA Real Estate and Sotheby's is the largest domestic real estate broker by value. The housing market has been slowly recovering from its 2008 lows and now appears "slow and steady," in our view. Additionally, we liked the cash-flow characteristics of Realogy's business. Unfortunately, in November Realogy reported disappointing quarterly earnings, as well as an unexpected drop in yearover-year earnings results. Company management stated 2 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

3 that EBITDA (earnings before taxes, depreciation and amortization) was hurt by higher commission splits, hurricanes and weaker results from its corporate-relocation division. This decline also followed the release of the Republican-led tax reform bill, which capped the mortgage interest deduction. Our position returned about -18% this period, making it our largest individual detractor. Q: What else weighed on relative performance Underexposure to large index component Microsoft hurt. We added substantially to our position here during the past six months, as we liked the growth of Microsoft's cloudcomputing segment, in which the firm rents software to customers on a subscription basis. Microsoft is now the second-largest cloud services provider in the U.S., behind only Amazon.com. We'd moved the fund's position in the software maker to a slight overweighting by December 31. Shares of Microsoft rose about 25% the past six months, driven by improving sales of Azure the firm's cloud-based internet software. Revenue from Azure, which competes with Amazon Web Services, rose 90% and contributed to a healthy 57% gross margin for Microsoft's cloud business. Completely avoiding index component Boeing was another detractor. The aircraft maker and defense contractor gained about 51% on the Trump administration's promise to boost military spending, along with the firm's strong financial results and recent cost-cutting efforts. We'll also mention oncology-focused biopharmaceutical firm Tesaro. Its shares plunged in early-november on the company's announcement that sales of Zejula, its drug to treat ovarian cancer, did not meet analysts' expectations. The European Commission granted marketing authorization for Zejula later that month; however, this news did not materially influence Tesaro's share price: the stock returned -41% for the full six-month period. I should also note that our cash position, averaging about 4% of fund assets the past six months, dragged on performance in a strongly rising market. Avoiding index component Celegene also lifted our relative result. Shares of Celgene took an October tumble amid a flurry of negative news, including announcement that the firm would cease trials for its candidate compound to treat Crohn's disease, as well as downward earnings guidance. These events were followed by worries over other of Celgene's pipeline prospects and the potential for a reshuffling of company executives. Celgene finished up the period with roughly a -20% return. Another positive was our out-of-index stake in Tencent Holdings, China's biggest social-network and gaming firm. The stock was boosted by a strong rally in Asian tech stocks, as well as by solid earnings owed to the popularity of Tencent's smartphone games, its WeChat app and its streaming video service. The company's success made Tencent Asia's most valuable company this year. Q: Asher, what's your outlook as of year-end The market strongly rewarded growth during 2017, and from our vantage at December 31, stocks no longer appear as attractive to us as they did earlier in the year. However, we think competitive moats around the top internet and software companies we hold continue to strengthen. Meanwhile, revenue growth fundamentals remain strong. Outside of tech, we're seeing signs of a housing-market rebound, and the regulatory environment has slackened substantially for large financial-services firms. Given this backdrop, we plan to stick with the big growers in tech, keeping an eye out for any sign of fundamental weakness and reserving the right to adjust the fund's positioning accordingly should such weakness arise. We've also opportunistically purchased stock in companies with housing-market exposure and added to large-cap banks. Q: Turning to the positive, what stocks were additive to relative performance Stocks of some electronic-payment processors gained strongly this period, including fund holdings Square (+48%) and PayPal Holdings (+37%). Payment processors continued to benefit from industry consolidation, as well as consumers' move away from cash and towards credit- and online-based purchases. Square the fund's largest individual contributor this period got a further boost in November, when it began to test the acceptance of the Bitcoin digital currency on its payment application. 3 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

4 LARGEST CONTRIBUTORS VS. BENCHMARK Asher Anolic on the changing face of retail: "As e-commerce sales have risen, we've seen traditional retailers rushing to catch the trend by integrating physical stores with new online investments nicknamed 'bricks and clicks.' Discount retailing juggernaut Wal-Mart has made some online inroads with its 2016 purchase of Jet.com, using the scale and convenience of its physical stores to bridge to online relationships. "More recently, 'pure-play' e-tailers have been pushing into the brick-and-mortar segment, even as more-traditional competitors struggle. Amazon, which recently dipped a toe in with branded popup bookstores and its acquisition of Whole Foods, provides perhaps the most prominent example. "The habit-forming convenience that drove buyers and sellers to Amazon's platform has allowed the firm to scale efficiently and capture an increasing share of the market, nearly all of which has been through online gains. But online habits are only a portion of consumer activity. Certain products are better suited to traditional retail environments, and holding a product provides tangible impressions simply unavailable online. Sales professionals can provide another important service, especially for higher-priced, high-consideration items where fit is key, such as engagement rings or hiking gear. Also, online acquisition is pricey, and some online retailers find that not only do their physical stores operate profitably but that their brick-and-mortar presence actually helps increase online sales. "For Amazon to maintain its edge, it must anticipate the needs and wants of the consumers it serves. While we don't anticipate that Amazon will build or acquire a massive network of stores in every area of the retail industry, we think it will look to add more real-world assets over time. "If executed properly, we think this model could be even more powerful than a strictly online tack. China's Alibaba is executing a similar strategy, and it's driving immense growth and shareholder returns. We're paying attention; we think this trend could be an indication of where U.S. retail is headed over the next five to 10 years." Holding Square, Inc. Market Segment Average Relative Relative Contribution (basis points)* 0.99% 31 Celgene Corp. Health Care -0.74% 27 Tencent Holdings Ltd. 1.03% 27 Insmed, Inc. Health Care 0.51% 26 Charles Schwab Corp. Financials 0.53% 22 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment Average Relative Relative Contribution (basis points)* Realogy Holdings Corp. Real Estate 1.52% -53 Microsoft Corp % -34 The Boeing Co. Industrials -1.08% -33 TESARO, Inc. Health Care 0.36% -26 First Republic Bank Financials 0.85% -25 * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 85.43% 89.50% International Equities 10.40% 7.42% Developed Markets 7.31% 4.89% Emerging Markets 3.09% 2.53% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 4.17% 3.08% 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. 4 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

5 MARKET-SEGMENT DIVERSIFICATION 10 LARGEST HOLDINGS Market Segment Six Months Ago 40.62% 40.61% Financials 12.09% 7.85% Consumer Discretionary 11.82% 15.30% Health Care 9.89% 10.86% Industrials 7.97% 7.33% Consumer Staples 4.34% 7.72% Materials 3.86% 1.68% Real Estate 2.98% 3.90% Energy 2.26% 1.69% Telecommunication Services 0.00% 0.00% Utilities 0.00% 0.00% Other 0.00% 0.00% Holding Alphabet, Inc. Class A Microsoft Corp. Amazon.com, Inc. Home Depot, Inc. Market Segment Consumer Discretionary Consumer Discretionary Six Months Ago 6.62% 5.82% 5.03% 1.00% 4.73% 4.22% 3.08% 2.69% Charles Schwab Corp. Financials 2.95% 0.37% Facebook, Inc. Class A Apple, Inc. Visa, Inc. Class A Adobe Systems, Inc. 2.86% 6.75% 2.82% 2.85% 2.36% 1.60% 2.20% 1.91% JPMorgan Chase & Co. Financials 1.86% 1.45% 10 Largest Holdings as a % of Net Assets 34.52% 33.13% 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. FISCAL PERFORMANCE SUMMARY: Periods ending December 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Growth Discovery Fund Gross Expense Ratio: 0.66% % 34.70% 34.70% 13.27% 17.17% 8.07% Russell 3000 Growth Index 13.98% 29.59% 29.59% 13.51% 17.16% 9.93% S&P 500/Russell 3000 Growth 13.98% 29.59% 29.59% 13.51% 17.16% 9.93% Morningstar Fund Large Growth 12.07% 27.67% 27.67% 11.06% 15.29% 8.31% % Rank in Morningstar Category (1% = Best) % 21% 19% 58% # of Funds in Morningstar Category ,363 1,216 1, Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 03/31/ 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. 5 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

6 Definitions and Important 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 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. Growth stocks can perform differently from the market as a whole and can be more volatile than other types of stocks. 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. Effective 7/1/17, Jason Weiner transitioned to lead portfolio manager and Asher Anolic was added as co-portfolio manager of the fund. 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. Russell 3000 Growth Index is a market-capitalization-weighted index designed to measure the performance of the broad growth segment of the U.S. equity market. It includes those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth rates. S&P 500/Russell 3000 Growth Index represents the performance of the Russell 3000 Growth Index since February 1, 2007, and the S&P 500 Index prior to that date. 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 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. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. 6

7 Manager Facts Cornell University. Jason Weiner is a 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 plannin 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. Weiner serves as lead portfolio manager of Fidelity Growth Discovery Fund, Fidelity Advisor Equity Growth Fund, Fidelity Advisor Series Equity Growth Fund, Fidelity Advisor World Funds Equity Growth Fund, and Fidelity VIP Growth. Prior to assuming his current responsibilities, Mr. Weiner managed various other Fidelity funds, including Fidelity Independence Fund, Fidelity Fifty Fund and Fidelity Advisor Fifty Fund. Additionally, Mr. Weiner managed Fidelity OTC, Fidelity Growth Discovery Fund, Fidelity Export and Multinational Fund, Select Computers, and Select Air Transportation. He has been in the investments industry since joining Fidelity as an equity analyst in Mr. Weiner earned his bachelor of arts degree in political science from Swarthmore College. He is also a CFA charterholder. Asher Anolic is a portfolio manager and research analyst in the Equity division at Fidelity Investments. 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. Anolic covers global pharmaceuticals and serves as co-manager of Fidelity Select Pharmaceuticals, Fidelity Growth Discovery Fund, Fidelity Advisor Equity Growth Fund, Fidelity Advisor Series Equity Growth Fund, Fidelity Advisor World Funds Equity Growth Fund, and Fidelity VIP Growth. Prior to assuming his current responsibilities, Mr. Anolic covered global consumer staples and regional banks. Before joining Fidelity in 2008, Mr. Anolic was a summer intern at Bear Stearns. Previously, Mr. Anolic served as a director at Thomson Financial and as an analyst at Herzog, Heine, Geduld, Inc. (Merrill Lynch). He has been in the financial services industry since Mr. Anolic earned his bachelor of arts degree in political science from Vassar College and his master of business administration degree from the Johnson Graduate School of Management at 7 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

8 PERFORMANCE SUMMARY: Quarter ending March 31, Annualized 5 10 / LOF 1 Fidelity Growth Discovery Fund Gross Expense Ratio: 0.66% % 12.83% 16.11% 10.02% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 03/31/ 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. Diversification does not ensure a profit or guarantee against a loss. 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