Fidelity Diversified International Fund

Transcription

1 Fidelity Diversified International Fund Key Takeaways For the semiannual reporting period ending April 30, 2018, the fund's Retail Class shares returned 0.91%, trailing the 3.53% advance of the benchmark MSCI EAFE Index. Stock selection was the primary driver of the fund's result versus the benchmark although, in aggregate, sector allocation also detracted. The fund underperformed to varying degrees in eight of 11 sectors, but none stood out dramatically. Positioning in information technology and energy hurt most. Similarly, no single stock proved particularly damaging. The fund's biggest relative detraction came from a large overweighting in Micro Focus International, a legacy systemssoftware provider that faced challenges during the period. Positioning in utilities and picks in industrials met with modest success. The fund's top relative individual contributor, though, was an overweighting in Norway-based Statoil, a developer of oil, gas, wind and solar energy with operations in 36 countries. The geographical view reflected sector and stock results: fund picks detracted materially in the U.K. and, less so, Japan. Out-ofindex exposure to U.S.-based global firms added notable value. As of April 30, Bill maintains conviction in the fund's stock portfolio. He does not envision any major changes to his investment process, which is highly aligned with the efforts of Fidelity's global research team. Bill believes his focus on quality companies, predictable secular growth, high return on capital, strong balance sheets and durable businesses remains the best way to add value versus the benchmark over time. MARKET RECAP The MSCI ACWI (All Country World Index) ex USA Index gained 3.58% for the six months ending April 30, Manufacturing and export activity plus a generally weak U.S. dollar underpinned markets early on, but stocks reversed sharply in February amid fear that rising inflation and potential economic overheating would prompt the U.S. Federal Reserve to pick up the pace of interest rate hikes. Markets lost further ground in March on global-trade concerns after the U.S. announced tariffs on Chinese imports. Among sectors, on-the-rise oil prices helped make energy (+11%) the top gainer. Real estate (+6%), consumer discretionary (+5%) and financials (+4%) also stood out. Laggards included the defensive utilities (+2%), consumer staples (+2%) and telecom services (0%) sectors. Industrials (+1%) saw weakness among commercial & professional services stocks, while information technology (+1%) faced numerous negative news items. Regionally, yen strength helped bring Japan (+5%) into line with the rest of the Asia-Pacific group (+5%). Continental Europe (+2%) lagged the export-led recovery in the U.K. (+6%) as investors reacted to local elections and global trade tension. Canada (-1%) was nipped by commodity-price volatility and NAFTA worries. Emerging markets (+5%) were supported by broadly stable macroeconomic trends among several group constituents. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Manager Bill Bower Fund Facts Trading Symbol: Bill Bower Manager FDIVX Start Date: December 27, 1991 Size (in millions): $17, Investment Approach Fidelity Diversified International Fund is a broadly diversified international equity strategy that seeks capital growth by investing primarily in stocks from foreign developed markets. We manage the fund with a long-term view, focusing on high-quality businesses with durable or improving growth prospects that are benefiting from competitive advantages and are structured to achieve consistent profitability. We also value strong balance sheets, proven track records, high returns on capital and solid management teams whose interests are aligned with those of shareholders. We strive to uncover these companies through in-depth fundamental analysis, working in concert with Fidelity's global research team. While conscious of valuations, we may be willing to pay a slight premium for stocks we favor. Our disciplined investment process results in a styleconsistent strategy that participates in the market in a risk-managed manner. Q: Bill, how did the fund perform for the six months ending April 30, 2018 The fund kept good pace during the momentum-driven market of the period's first half and even fared relatively well during February's rush of volatility. However, a latebreaking rally in commodity and energy prices generated a big headwind for us, helping hold the fund's Retail Class shares to a 0.91% gain for the full period, well behind the 3.53% return of the MSCI EAFE Index. The fund also trailed its peer group average this period. The six-month gap led us to lag the benchmark and peer average for the trailing one-year period as well. Q: What influenced the fund's result versus the MSCI index the past six months Everything and nothing. What I mean is that, although the fund underperformed in eight of the 11 market sectors, no single sector stood out dramatically. And in most cases, the performance deficit hinged on just a handful or even one particular stock. Take, for instance, information technology, the fund's biggest sector detractor. Almost all the damage derived from an overweighting in Micro Focus International, the fund's biggest individual relative detractor. Last September, U.K.-based Micro Focus, which provides legacy enterprise infrastructure software, bought software assets from Hewlett Packard Enterprise for $8.8 billion, the largest deal in Micro Focus' history. The integration has proven more challenging than anticipated, as heavy salesforce attrition led to lost sales, which in turn helped push the value of the company's stock down by half. In the same sector, out-of-index Taiwan Semiconductor Manufacturing (-9%), which makes components for smart phones and other devices, took what I considered an unfair hit amid slowing sales for the Apple iphone. Israel-based Check Point Software Technologies (-18%), a large provider of data-security software, missed earnings estimates because CIOs slowed spending as they weighed their options in fighting malware and cyber-attacks. For all these stocks, I considered the setbacks temporary, and I did not materially alter the fund's positioning. 2 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

3 Q: What else detracted from relative results As noted, cyclical commodities rallied strongly this period, and I was more defensively positioned. Choices in materials mostly having to do with the metals & mining industry detracted overall. The fund's zero-weighting in BHP Billiton (+19%) hurt. The stock advanced even though the firm lowered its fiscal-year guidance for output of iron ore. In energy, I tend to avoid big integrateds like Royal Dutch Shell or Total; both logged double-digit gains this period as their refining and marketing operations rallied along with the price of oil. Instead, I favored exploration & production outfits and downstream service providers, which have yet to see the full benefit of higher oil prices. In my experience, it's very rare to see this great a dispersion among energy segments, and as of period end, I expect the gap to revert as more of the rally flows further down the pipeline. That said, I'll point out that our No. 1 relative contributor was in energy: Norway's Statoil a developer of oil, gas, wind and solar energy with operations in 36 countries gained about 28% in the fund, so our overweighting there helped. Similarly, the fund's out-of-index stake Canadian oil-sands producer Suncor Energy (+14%) added value. Q: What else worked in the fund's favor Positioning in utilities and picks in industrials met with modest success. Also, individual decisions in the food, beverage & tobacco industry helped; namely, avoiding Nestle (-5%) in order to overweight Japan-based drug-store chains Tsuruha Holdings (+17%) and Welcia Holdings (+37%), the latter of which is not in the index. I liked the opportunity for these two to consolidate the industry via both organic and inorganic growth, as well as shopping trends in Japan that favor drug stores over supermarkets. Holdings in U.S.-based multinationals also added relative value, in particular, payment processors Mastercard (+20%) and Visa (+16%). I liked both of these out-ofbenchmark stocks for their ability to benefit from global growth in electronic over cash transactions. In the same vein, as of period end I'm keeping an eye on electronic payments in emerging markets, as I see the potential for consumers there to skip credit cards altogether and jump straight to phone-based payment apps. Our other out-of-benchmark exposures Canada, which was mostly energy stocks, and emerging markets, mostly Taiwan Semi modestly detracted, but I'm not too worried. Indeed, if I have a worry, it's that that I'll be too slow. Q: Meaning Many emerging markets including India and China have enjoyed higher secular growth versus the developed world, and I'm confident in a number of trends there. I believe China's consumer is going to grow faster than the developed world's for the foreseeable future. Wages, inflation: I think China's ahead of the game. Also, I think "A shares" have huge potential, so I'm looking for ideas there. A shares represent companies in mainland China, with purchase restricted to Chinese citizens. But by dint of relaxed regulation, MSCI plans to include China A shares in its indexes staring in June At that point, I foresee a substantial flow of assets as investors devote resources to researching and tracking the A-share market. So, my radar is up, but the process is slow. Management teams in China are not wildly accessible. Meeting with the companies takes time. The fund has had success with the likes of AIA Group and Prudential, which sell supplemental health insurance in Southeast Asia, products of increasing interest to a rising class of affluent buyers. Another fund "winner" targeting this demographic was Kweichow Moutai (+12%), maker of the formerly "luxury" liquor baiju. I'm trying to find more names like these. But I'm not rushing; I have a big enough repository of good stocks such that, if I want to buy right and sell right, I can take my time. Q: Other thoughts as of April 30, Bill Shareholders should know that I'm disappointed with the bevy of bumps and bruises the fund took during this sixmonth time frame. But I don't think there's anything wrong with our positioning; I still like our holdings. I accept responsibility for some of the challenges in energy and materials, but much of the rest seems like noise to me. This portfolio is materially different from the benchmark, and when you display high conviction in the stocks you own, there are likely to be times the market moves against you in the short term. But sometimes the worst thing you can do is flinch at the wrong moment. As Ray Davies sang, "Nervous tension, man's invention/is the biggest waste of human energy." Fretting doesn't help, certainly not up here [pointing to head]. I can't spend too much time trying to figure out what seems to me a bit of an irrational market serially too hot or too cold for the fund's positioning. I'd rather spend my energy looking for investment ideas to make the fund better. So, I think now is the time to reinforce portfolio discipline. I continue to revisit my thesis on each fund holding, and I keep coming back to the view that we own quality stocks at attractive valuations. I take a long-term view and I believe the portfolio will prove out over time. So I plan to sit tight. 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 Bill Bower on 'ballast' in the fund: "Investments in defensive sectors, such as health care and consumer staples, that I thought would provide ballast against price swings didn't. "Several health care holdings underperformed for idiosyncratic reasons Sanofi and Fresenius, for example. Bayer missed estimates and cut forward guidance; overhang from the yet to be completed Monsanto deal also weighed on the stock. More generally, the drug companies faced pricing pressure from PBMs (pharmacy-benefit managers), where the balance of power has shifted to consolidated buyers of drugs. "Also, the internet has drastically increased price transparency, helping patients comparison-shop across their local drug stores or even online sources. While good for consumers, this has generated headwinds for drug makers. "But looking broadly over the past six months, I do not see a lot of earnings revisions; I think investors just didn't want to own health care stocks, especially ahead of upcoming U.S. elections. "The fund avoided many of the big pharmas zero-weightings in Takeda Pharmaceuticals and Novartis helped us. Still, I maintained exposure to certain index companies to help manage risk. But derating in the sector was so massive that we took a hit anyway, despite our overall underweighting. "Similarly, staples stocks also dealt with ongoing disintermediation, losing market share to online shopping and price discovery. Thus, to a degree, this traditionally defensive sector also hurt us. "So, what's my strategy as of April 30 I'm doing nothing. I'm not buying on dips, nor am I unloading our holdings. I have conviction in the fund's staples and health care names; I like them, and I'm waiting to see how they play out. "Many of our these companies are at historically cheap valuations. If they can recapture some pricing power or market share, I think we could see some very useful results. I consider these good businesses, with high margins and high return on capital; I'm just not betting the farm on them." Holding Market Segment Average Relative Relative Contribution (basis points)* Statoil ASA Energy 1.01% 22 Nestle SA (Reg. S) Consumer Staples -1.72% 15 Welcia Holdings Co. Ltd. Consumer Staples 0.48% 14 Tsuruha Holdings, Inc. Consumer Staples 1.00% 12 MasterCard, Inc. Class A * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding Micro Focus International PLC Royal Dutch Shell PLC Class A (United Kingdom) Taiwan Semiconductor Manufacturing Co. Ltd. sponsored ADR Check Point Software Technologies Ltd. Alimentation Couche- Tard, Inc. Class B (sub. vtg.) * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Market Segment 0.78% 12 Average Relative Relative Contribution (basis points)* 0.55% -38 Energy -1.81% % % -12 Consumer Staples 1.04% -12 Six Months Ago International Equities 89.15% 88.75% Developed Markets 78.68% 77.87% Emerging Markets 10.47% 10.88% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 7.16% 7.83% Bonds 0.00% 0.00% Cash & Net Other Assets 3.69% 3.42% 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 Market Segment Six Months Ago Financials 25.75% 23.76% Industrials 16.09% 14.60% 11.79% 13.34% Consumer Staples 10.88% 13.13% Consumer Discretionary 10.75% 10.64% Health Care 9.82% 10.50% Materials 5.30% 3.91% Energy 4.68% 4.38% Telecommunication Services 0.97% 1.90% Utilities 0.16% 0.00% Real Estate 0.10% 0.43% Other 0.00% 0.00% COUNTRY DIVERSIFICATION Country Six Months Ago United Kingdom 18.06% 16.51% Japan 17.25% 17.49% United States 10.60% 11.08% France 7.63% 7.13% Germany 7.39% 7.82% Netherlands 4.91% 5.52% Switzerland 4.44% 2.63% India 4.33% 4.02% Canada 3.39% 3.64% Ireland 3.10% 3.22% Sweden 2.33% 2.70% Spain 2.30% 2.38% China 1.92% 2.05% Norway 1.61% 1.06% Hong Kong 1.58% 1.31% Taiwan 1.28% 1.45% Belgium 1.16% 2.10% Italy 1.05% -- Australia 1.00% 1.47% Other Countries 4.67% LARGEST HOLDINGS Holding Market Segment Six Months Ago Prudential PLC Financials 1.64% 1.52% ORIX Corp. Financials 1.56% 1.61% British American Tobacco PLC sponsored ADR Keyence Corp. Consumer Staples 1.42% 1.41% 1.40% 1.40% Statoil ASA Energy 1.40% 0.91% Unilever NV (Certificaten Van Aandelen) (Bearer) Consumer Staples 1.28% 1.40% AIA Group Ltd. Financials 1.23% 0.99% Wolseley PLC Industrials 1.20% 1.02% SAP SE 1.18% 1.61% HDFC Bank Ltd. Financials 1.11% 1.23% 10 Largest Holdings as a % of Net Assets 13.42% 14.39% 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. 5 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

6 FISCAL PERFORMANCE SUMMARY: Periods ending April 30, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Diversified International Fund Gross Expense Ratio: 0.94% % -0.97% 11.55% 4.60% 6.65% 2.54% MSCI EAFE Index (Net Massachusetts tax) 3.53% 0.82% 14.75% 5.15% 6.07% 2.59% Morningstar Fund Foreign Large Growth 2.85% 0.51% 16.15% 6.22% 7.00% 3.36% % Rank in Morningstar Category (1% = Best) % 82% 50% 80% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/27/ 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. 6 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

7 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, all of which are magnified in emerging markets. 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. 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 EAFE Index (Net MA Tax) is a market-capitalization-weighted index that is designed to measure the investable equity market performance for global investors in developed markets, excluding the U.S. & Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts. MSCI ACWI (All Country World Index) ex USA Index is a marketcapitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States. 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. 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 7

8 Manager Facts William Bower 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, he is responsible for managing Fidelity Diversified International Fund (since 2001) and Fidelity Advisor Diversified International Fund (since 2009). Prior to assuming his current responsibilities, Mr. Bower managed various other Fidelity funds, including Fidelity Advisor Diversified International Fund from 2001 to 2004, Fidelity International Discovery Fund from 1998 to 2001, Fidelity Overseas Fund (comanaged) from 1996 to 1998, and Fidelity Select Construction and Housing from 1994 to Before joining Fidelity as an analyst in 1994, Mr. Bower was a commercial real estate loan officer at Michigan National Bank from 1989 to He has been in the investments industry since Mr. Bower earned his bachelor of science degree from Western Michigan University and his master of business administration degree from the University of Michigan. 8 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

9 PERFORMANCE SUMMARY: Quarter ending March 31, Annualized 5 10 / LOF 1 Fidelity Diversified International Fund Gross Expense Ratio: 0.94% % 5.13% 7.48% 3.05% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/27/ 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. 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.