Fidelity Total Emerging Markets Fund

Transcription

1 Fidelity Total Emerging Markets Fund Key Takeaways For the fiscal year ending October 31, 2017, the fund's Retail Class shares gained 21.37%, outpacing the 18.14% return of the Fidelity Total Emerging Markets Composite Index SM. Versus the Composite, security selection within both the emerging-markets (EM) equity and debt subportfolios lifted performance the past 12 months, as did asset allocation. The debt sleeve outperformed its benchmark, mainly due to helpful decisions in Ukraine, Venezuela, China and Argentina. Successful security selection overwhelmingly drove the equity sleeve's strong outperformance of its benchmark, with choices among consumer discretionary, industrials, consumer staples and information technology stocks helping most. Conversely, choices in the health care and real estate sectors detracted. At period end, the fund remains overweighted in EM equities, given Lead Manager John Carlson's high conviction in the ongoing global economic recovery. On January 2, 2017, Timothy Gill became Co- Manager of the fund's EM debt subportfolio. MARKET RECAP For the 12 months ending October 31, 2017, the Fidelity Total Emerging Markets Composite Index consisting of 60% equities and 40% debt gained 18.14%. Separately, emerging-markets (EM) equity gained 26.91%, as measured by the MSCI Emerging Markets Index. EM debt rose 5.89%, according to the J.P. Morgan Emerging Markets Bond Index Global. Both asset classes generally benefited from continued synchronized expansion in global economic activity, which sustained investors' appetite for risk assets. Moreover, a continued flattening of the yield curve partly the result of a decline in 30-year interest rates also supported EM debt. EM equities were bolstered by China (+41%) and South Korea (+41%). Improved economic growth supported Chinese stocks, while a widespread technology rally lifted both markets. Turning to EM debt, Ukrainian bonds advanced about 17%. The country issued its first sovereign bond since restructuring its debt in 2015, drawing widespread demand. In addition, reforms progressed due to the influence of the International Monetary Fund, which provided financing support. One of the few countries in the EM debt index to decline was Venezuela (-1%), which suffered amid geopolitical tension and U.S.-issued sanctions. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A John Carlson Lead Manager Fund Facts Trading Symbol: FTEMX Gregory Lee Co-Manager Start Date: November 01, 2011 Size (in millions): $ Investment Approach Fidelity Total Emerging Markets Fund is a diversified emerging-markets (EM) strategy that seeks income and capital growth by investing across the capital structure, targeting a 60/40 balanced mix of equity and debt securities. We employ a disciplined investment process designed to emphasize security and country selection as well as asset allocation strategic shifts around the fund's neutral asset mix to capitalize on relative-value opportunities in the markets in seeking to provide attractive risk-adjusted returns. In managing the debt portion of the portfolio, we combine top-down "macro" analysis with bottom-up security selection to uncover attractive investment opportunities. Debt selection is used as a means of complementing equity country exposure to expand the fund's geographic diversification. For the equity portion, we take a sector-neutral approach that emphasizes active stock selection by dedicated sector managers as the primary source of excess return. Our investment team works together to identify attractive opportunity sets, supported by in-depth fundamental and macroeconomic analysis that leverages Fidelity's global research capabilities. An interview with Lead Manager John Carlson and Co- Manager Gregory Lee Q: John, how did the fund perform the fiscal year ending October 31, 2017 J.C. The fund's Retail Class shares gained 21.37%, outpacing the 18.14% return of the Composite benchmark, but underperforming both the emerging-markets (EM) equity index and the peer group average. The fund tends to underperform the pure-play EM equity index in periods of market strength, such as the one we experienced the past year. However, we're pleased with what we viewed as strong performance overall, given the fund's blended EM fixed-income and equity mandate. Q: What drove the fund's performance versus the Composite index the past 12 months J.C. Successful security selection within both the EM debt and equity sleeves lifted relative performance. Our asset allocation decisions also contributed to the relative return. I am charged with allocating the fund's equity and debt assets, which represent 60% and 40% of the Composite index, respectively. I base my decisions on a number of factors. These include frequent discussions with our EM equity team regarding our outlooks, the global backdrop, and other factors. We also review a number of global indicators for both EM debt and equity, including relative and absolute valuations. Of note, Tim Gill joined me as Co-Manager of the fund's debt component on January 2. The equity subportfolio remains in the capable hands of the five co-managers who make up Fidelity's Stock Selector Emerging Markets Group. Q: Please describe what was behind your asset allocation strategy J.C. Back in March 2016, we moved to an overweighting in EM equity, where we saw value based partly on investors' pervasive pessimism toward this asset class. Amid a continued-positive backdrop for these stocks, we've maintained the fund's overweighting in EM equity and its corresponding underweighting in EM debt, increasing our 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 equity position further in the latter months of the period. Overall, this stance was additive. Q: What more can you tell us about security selection in the debt sleeve J.C. A lot went right this period. Outperformance here was a combination of what we owned and what we didn't own. From a country perspective, an overweighting in Ukraine added the most value versus the benchmark. Our investments in Ukrainian GDP (gross domestic product) warrants proved a big positive. Unlike traditional debt securities, which are linked to interest rates, GDP warrants are tied to economic growth of the issuing country. Positioning in Venezuela added meaningful value despite the country's geopolitical turmoil the past year. We remained overweighted based on our expectation that Venezuela would continue to service its debt, thus rendering the bonds underpriced for their risk, in our view. The fund also benefited from not owning bonds issued by China. This market tends to underperform when the broader market gains, as was the case the past year. Elsewhere, the fund was helped by several positions in longer-dated sovereign bonds issued by Argentina, which benefited from a flattening of the U.S. yield curve, as well as the implementation of more-orthodox government policies by Argentina's administration. Q: Turning to you, Greg. What contributed to the equity sleeve's result G.L. Successful security selection overwhelmingly drove the sleeve's strong outperformance of its benchmark, with choices among consumer discretionary, information technology, industrials and consumer staples stocks helping the most. Among individual stocks, an overweighting in Taiwan-based GlobalWafers was our biggest individual contributor. The firm makes silicon wafers upon which semiconductors are made. The stock benefited from the integration of a key acquisition last year, as well as continued growth in global chip manufacturing, led by China. Elsewhere, it helped to overweight state-owned Russian banking and financial services firm Sberbank. This position corresponded with our bullish view of EM financials, many of which we thought traded at sizable discounts and could benefit from interest-rate hikes. In general, Sberbank and other Russian stocks gained ground late in the period, partly due to an uptick in crudeoil prices and diminished fears about the impact of U.S.- imposed sanctions. Q: What equity holdings disappointed most G.L. While choices in health care hurt most from a sector standing, our two biggest individual detractors were tech names to which we were underexposed versus the index. We underweighted South Korea-based Samsung Electronics, the world's largest maker of memory chips, smartphones and other electronics products, and also a very large benchmark component. Samsung reported two consecutive quarters of record profits, benefiting from its booming chip business. It also hurt to largely avoid SK Hynix, another South Korean chipmaker. The stock gained for much of the period, rallying the most in September on plans for rival Toshiba to sell its memory-chip unit to a global consortium that includes SK Hynix, Apple and others. We sold SK Hynix from the fund by period end. Q: Back to you, John, What is your outlook for emerging markets J.C. One of the most significant factors behind the strength in EM has been the coordinated global-economic upswing. In fact, the International Monetary Fund predicts 2017 will mark the fastest global economic growth in six years. At the same time, the consistent degradation of EM economic growth experienced over the past several years appears to have bottomed. We think this leaves EM poised to resume its role as the driver of global growth. Coupled with this, corporate earnings expectations in EM have inflected upward, which I believe supports our decision to overweight the fund's stake in EM equities. Of course the backdrop is not without risks, including rising short-term U.S. interest rates, as well as geopolitical factors. But for now, we see a strong tailwind for EM. Our asset allocation decision is based not only on the state of economic fundamentals, but on the prospects of EM equity relative to debt. With longer-term interest rates still on the low side, our opportunity cost of holding relatively less debt and more equity also remains low. Also, the low interest-rate environment and improving economic fundamentals also could support asset flows into EM potentially a positive for EM equity prices. It is worth noting that over the fund's history, most of the excess return has come from security selection. We would expect this to persist as both equity and debt markets continue to offer plentiful opportunities. 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 Greg Lee on the energy and industrials equity subportfolios: "I tend to look for one-off opportunities companies where I believe the investment community is underappreciating the merits of the business as opposed to anything thematic. "This is particularly the case in the industrials sector, where the fund holds a wide array of companies. Some of these are cyclical businesses and some are defensive. A few look relatively cheap, while others may look a bit expensive but have hidden value, in my view. "In all cases, I aim to pay less than I think each company is worth. "Within energy, I believe the best opportunities lie in companies with relatively strong cash generation, structural growth opportunities and higher-quality management teams all of which should allow these firms, over time, to outperform their lower-quality peers. "Stock selection in the industrials subportfolio was a particular plus the past year, as it advanced about 31%, compared with the 16% gain of the index's industrials component. One of the fund's top-performing individual stocks within industrials was Sinotruk. Shares of the Hong Kong-based heavy truck manufacturer benefited from a broad rally in Chinese stocks. "In energy, it helped to own Turkey's Tupras Turkiye Petrol Rafinerileri, Turkey's only oil refiner. India-based energy conglomerate Reliance Industries also added value. Both energy names were lifted partly by an uptick in oil prices, as well as expanding margins for global refining. Overall, the fund's energy investments returned 28% this period, outpacing the roughly 22% gain of the energy sector within the benchmark." Holding Sberbank of Russia sponsored ADR Largan Precision Co. Ltd. Country Average Relative Relative Contribution (basis points)* Russia 1.03% 38 Taiwan 0.89% 30 GlobalWafers Co. Ltd. Taiwan 0.23% 29 JD.com, Inc. sponsored ADR China 1.26% 28 Shangri-La Asia Ltd. China 0.45% 25 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding Country Average Relative Relative Contribution (basis points)* SK Hynix, Inc. Korea (South) -0.38% -26 Samsung Electronics Co. Ltd. Ping An Insurance (Group) Co. of China Ltd. (H Shares) U.S. Treasury Bonds 2.875% 11/15/46 Taiwan Semiconductor Manufacturing Co. Ltd. sponsored ADR * 1 basis point = 0.01%. Korea (South) -0.53% -22 China -0.43% -20 United States 1.14% -20 Taiwan -0.31% For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 MARKET-SEGMENT DIVERSIFICATION Market Segment Six Months Ago Information Technology 25.32% 21.46% Financials 23.25% 21.65% Consumer Discretionary 14.16% 13.99% Materials 7.64% 6.81% Energy 6.61% 6.50% Consumer Staples 6.08% 6.71% Industrials 5.17% 5.52% Telecommunication Services 4.19% 4.59% Real Estate 2.67% 2.32% Utilities 2.44% 2.78% Health Care 2.41% 2.26% Multi Sector 0.06% 5.41% Other 0.00% 0.00% COUNTRY DIVERSIFICATION Country Six Months Ago China 13.02% 11.96% Korea (South) 9.23% 8.24% Hong Kong 8.15% 6.48% Brazil 7.56% 7.39% India 6.64% 5.25% Taiwan 5.93% 5.42% Russia 5.61% 4.62% South Africa 5.00% 4.61% Mexico 3.37% 4.57% Turkey 2.69% 2.27% United States 2.66% 5.54% Indonesia 2.28% 1.81% Argentina 2.05% 1.78% Ukraine 1.72% 1.43% Lebanon 1.66% 1.60% United Arab Emirates 1.45% 1.26% 10 LARGEST HOLDINGS Holding Country Six Months Ago Tencent Holdings Ltd. China 3.98% 2.69% Alibaba Group Holding Ltd. sponsored ADR China 3.54% 1.47% Naspers Ltd. Class N South Africa 1.89% 2.58% Sberbank of Russia Russia 1.71% 1.44% Taiwan Semiconductor Manufacturing Co. Ltd. Taiwan 1.55% 1.92% Largan Precision Co. Ltd. Taiwan 1.44% 1.25% Industrial & Commercial Bank of China Ltd. (H Shares) China 1.42% 0.94% JD.com, Inc. sponsored ADR China 1.29% 2.00% China Life Insurance Co. Ltd. (H Shares) Argentine Republic 7.5% 4/22/26 China 0.97% 0.54% Argentina 0.92% 0.55% 10 Largest Holdings as a % of Net Assets 18.72% 17.49% 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. ASSET ALLOCATION Asset Class Six Months Ago International Equities 71.03% 68.77% Emerging Markets 68.91% 66.18% Developed Markets 2.12% 2.59% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 0.42% 0.15% Bonds 25.58% 27.05% Cash & Net Other Assets 2.97% 4.03% 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 October 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Total Emerging Markets Fund Gross Expense Ratio: 1.62% % 26.44% 21.37% 7.59% 6.54% 6.97% MSCI Emerging Markets Index (Gross) 16.40% 32.64% 26.91% 6.08% 5.21% 5.31% Fidelity Total Emerging Markets Composite Index 10.97% 22.69% 18.14% 6.05% 4.94% 5.82% Morningstar Fund Diversified Emerging Mkts 13.34% 29.01% 22.97% 4.34% 4.59% -- % Rank in Morningstar Category (1% = Best) % 10% 17% -- # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/ 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 1.50% for shares held less than 90 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 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. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. IMPORTANT FUND INFORMATION Relative positioning data presented in this commentary is based on the fund's primary benchmark (index) unless a secondary benchmark is provided to assess performance. Effective 12/12/16, 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. MSCI Emerging Markets Index (Gross) is a market-capitalizationweighted index that is designed to measure the investable equity market performance for global investors of emerging markets. Fidelity Total Emerging Markets Composite Index is a customized blend of unmanaged indexes, weighted as follows: MSCI Emerging Markets Index - 60%; and J.P. Morgan Emerging Markets Bond Index Global - 40%. J.P. Morgan Emerging Markets Bond Index 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. 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 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 7

8 Manager Facts John Carlson is a senior 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. Carlson manages Fidelity and Fidelity Advisor Global High Income Fund, Fidelity and Fidelity Advisor Total Emerging Markets Fund, Fidelity New Markets Income Fund, and Fidelity Advisor Emerging Markets Income Fund. Before joining Fidelity in his current position in June 1995, Mr. Carlson was manager and head trader at Lehman Brothers International in London, and an executive vice president at Daiwa Securities. Previously, Mr. Carlson served as president at Security Pacific Securities, as a risk manager at Merrill Lynch, and as an analyst at A.G. Becker & Company. He has been in the investments industry since Mr. Carlson earned his bachelor of arts degree in mathematics from Wayne State University and his master of science degree in atmospheric physics from the University of Michigan. He was also a PhD candidate in meteorology at the Massachusetts Institute of Technology (MIT) and is a CFA charterholder. Gregory Lee 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 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. Lee comanages Fidelity and Fidelity Advisor Emerging Markets Discovery Fund (since 2014), Fidelity and Fidelity Advisor Total Emerging Markets Fund (since 2012), and Fidelity Series Emerging Market Fund (since 2012). Prior to assuming his current position in 2012, Mr. Lee was an emerging markets equity analyst from 2010 to 2012 and a U.S. equity analyst from 2007 to Before joining Fidelity in 2007, Mr. Lee worked as an equity research associate at Raymond James & Associates from 2002 to 2005, where he was responsible for covering stocks in the technology and defense sectors. He has been in the investments industry since Mr. Lee earned his bachelor of arts degree in economics from the University of Pennsylvania and his master of business administration degree from New York University. 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 March 31, Annualized 5 10 / LOF 1 Fidelity Total Emerging Markets Fund Gross Expense Ratio: 1.26% % 10.33% 6.54% 7.10% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/ 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.