Fidelity Overseas Fund

Transcription

1 Fidelity Overseas Fund Key Takeaways For the semiannual reporting period ending April 30, 2018, the fund's Retail Class shares gained 2.10%, trailing the 3.53% return of the benchmark MSCI EAFE Index. Amid choppy market action from February onward and a lack of clear sector and industry leadership, Manager Vincent Montemaggiore's focus on buying high-quality businesses at attractive valuations produced mixed results this period. Stock selection in consumer staples and health care weighed most on performance versus the benchmark, followed by a sizable underweighting in energy, by far the best-performing market sector this period. Geographically, stock picking in the U.K. was by far the biggest negative for relative performance. Conversely, Vince's picks in information technology lifted relative performance, as did stock selection in industrials. Regionally, out-of-benchmark exposure to the U.S. was helpful, along with choices in Japan and the rest of the Asia-Pacific area. As of April 30, Vince is confident about prospects for the global economy and believes stock valuations, while not cheap, are not an impediment to further gains in the market. He remains focused on filling the portfolio with the best collection of companies he can find at attractive valuations. 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 Vincent Montemaggiore Fund Facts Trading Symbol: Vincent Montemaggiore Manager FOSFX Start Date: December 04, 1984 Size (in millions): $7, Investment Approach Fidelity Overseas Fund is a diversified international equity strategy that seeks long-term capital growth. The fund's philosophy centers around owning highquality companies purchased at attractive prices that can outperform the market over the long term, given their ability to compound value through the re-investment of earnings back into the business at attractive returns. By focusing on buying these companies at inexpensive valuations, we attempt to build in an inherent margin of safety in the investment. We particularly favor firms with unique business models that are able to generate sustainably high returns on capital through a full business cycle and are trading at a discount to their intrinsic (fair) value based on several conservative valuation frameworks. We strive to uncover these companies through in-depth fundamental analysis, working in concert with Fidelity's global research team, as well as by leveraging the fund manager's own independent analysis. Q: Vince, how did the fund perform for the six months ending April 30, 2018 The fund's Retail Class shares gained 2.10% this period, trailing the 3.53% return of the benchmark MSCI EAFE Index. The fund also finished behind its peer group average, although by a smaller margin. For the corresponding 12-month period, the fund posted a double-digit gain that nevertheless lagged both the benchmark and the peer average. Q: What did you find noteworthy about the market environment the past six months After strong gains throughout 2017 and into January 2018, global stock markets were choppy from February onward amid concerns regarding rising inflation and interest rates, as well as about a potential trade war between the United States and China. Additionally, sector and industry leadership was in flux. For example, information technology, where we had a sizable overweighting in the software & services segment, had been extremely strong in the one-year reporting period ending October 31, but it was only mildly positive the past six months although the fund did better than that. Despite a muted gain for tech stocks in the benchmark, in aggregate, our stock selection here bolstered the fund's relative result, as did picks in industrials. On the other hand, the late emergence of energy as the market's best-performing sector hurt the fund, as we had a sizable underweighting there. President Trump's threat to pull out of the Iran nuclear deal fueled fears that oil output from that nation might decline if sanctions were reimposed, which helped boost the price of Brent crude to more than $74 per barrel by period end. In the process, benchmark names such as Netherlands-based energy giant Royal Dutch Shell a stock we didn't own, thus detracting from relative performance enjoyed strong gains. Additionally, management missteps at several of our holdings particularly at Conviviality, our largest relative detractor and an out-of-benchmark position also hurt the fund's relative result. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 Q: What happened there A new CFO at the U.K.-based distributor of alcoholic beverages revealed that the prior CFO had been stretching payment terms with suppliers to boost the company's free cash flow. The new CFO corrected this, which resulted in a year of no free cash flow. This change by itself should have been fine, but unfortunately it was followed by a material profit warning driven by heavy discounting and weak internal controls. The combination of these problems created a liquidity crunch that resulted in a distressed sale of the company toward the end of the period. Conviviality's stock plunged in early March and was suspended from trading on March 14. A sizable overweighting in Micro Focus International also detracted. The firm owns a collection of mature software assets assembled through a series of acquisitions. Through its various platforms, Micro Focus helps large corporations manage their existing software investments in mainframe, mobile and cloud. Last year, Micro Focus bought Hewlett Packard Enterprise's software businesses for $8.8 billion the largest deal in Micro Focus' history. The integration proved challenging, with revenue declining faster than anticipated amid heavy sales-force attrition. I maintained our position based on my confidence that management would successfully work through these issues. Japan's Suruga Bank another overweighting in the fund also worked against us. Once a highly regarded regional bank, Suruga suffered from recent lending missteps that called into question management's credibility and internal risk controls. The bank was involved in financing "share house" loans blocks of 110 million (roughly $1 million) or more lent to ordinary white-collar workers to buy units of low-rent urban apartments where tenants share kitchens, bathrooms and other facilities. When these properties had trouble attracting tenants, many of the borrowers could not repay their loans. Also, newspapers published rumors of falsified documentation in the underwriting process to get certain loans approved. Regulators in Japan recently began investigating the bank to understand how widespread these practices were, and I decided to exit this position. Q: Aside from the lift from technology and industrials mentioned earlier, what contributed Regionally, out-of-benchmark exposure to global players in the U.S. was helpful, along with stock selection in Japan and the rest of the Asia-Pacific area. Among individual holdings, the two largest relative contributors were Japan-based companies. Our top relative contributor was Nakanishi, a manufacturer of dental equipment. I considered this a high-quality business with dominant market share and strong fundamentals. During the period, growth accelerated, driven by market-share gains in all geographies in particular, by traction in penetrating the U.S. market in a more meaningful way. Also lifting relative performance was Welcia, a Japanese drug-store chain. The company is a beneficiary of the trend away from supermarkets and consolidation within the drugstore industry. This period, Welcia posted solid same-store sales growth and made considerable headway in closing the profit-margin gap between it and peers. S&P Global, based in the U.S., was another holding that lifted relative performance. The company boasts a dominant collection of financial-information businesses, providing data and analytics, research and commentary, benchmarks, and credit ratings. From an investment standpoint, the firm historically has offered high-recurringrevenue businesses with pricing power and good growth. S&P Global saw strength across most of its operations this period, as well as margin expansion well in excess of expectations, driving strong growth in earnings per share. All of the contributors I've mentioned here and, indeed, seven of the top 10, were out-of-benchmark positions. Q: What's your outlook as of April 30, Vince At period end, the global economy seems fine, and I think the businesses the fund owns are doing well for the most part. Valuations are far from cheap, but they are not an impediment to further gains in the market, in my opinion. The biggest risk to global growth, in my view, would be faster-than-anticipated inflation, which could drive morerapid tightening by central banks, putting pressure on growth rates and market multiples. This is not my base case, but it's certainly possible. With that said, rather than try to forecast macroeconomic variables that are largely unknowable, I try to keep my focus at the stock level and make sure that we own the best collection of businesses at the most reasonable valuations at any point in time. When you own good businesses with strong balance sheets and you don't overpay for them, any hiccup in the economy can be an opportunity for them to take share or buy a struggling competitor at a bargain price. 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 Vince Montemaggiore on investing in smaller companies late in an economic recovery: "The fund has had a higher weighting in smalland mid-cap (SMID) stocks than the index for most of my tenure on the fund. This has been and, I believe, should remain fertile ground for hunting for mispriced securities and creating alpha (excess value) for the fund. "By their very nature, smaller companies are less closely followed by analysts, which increases the likelihood of them being misunderstood and potentially mispriced by the market. Fidelity's global research capability is particularly suited to uncovering these ideas, given the sheer number of analysts we have across the globe 'turning over rocks' on a daily basis. "That being said, quality varies widely within the SMID space. Some firms have proven track records and managers who tend to create value in good times and bad, and others have shown high levels of cyclicality, illiquidity and derating during times of stress. With this in mind, and given that we appear to be later in the economic cycle, I have been raising the bar on quality in terms of potential new SMID ideas, as well as re-evaluating the existing portfolio." Holding Market Segment Average Relative Relative Contribution (basis points)* Nakanishi, Inc. Health Care 0.54% 17 Welcia Holdings Co. Ltd. Consumer Staples 0.55% 16 S&P Global, Inc. Financials 0.97% 15 Outsourcing, Inc. Industrials 0.47% 15 Prada SpA * 1 basis point = 0.01%. Consumer Discretionary LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment 0.41% 14 Average Relative Relative Contribution (basis points)* Conviviality PLC Consumer Staples 0.25% -36 Micro Focus International PLC Information Technology 0.49% -34 The Suruga Bank Ltd. Financials 0.37% -23 Royal Dutch Shell PLC Class A (United Kingdom) Roche Holding AG (participation certificate) * 1 basis point = 0.01%. ASSET ALLOCATION Energy -1.81% -19 Health Care 0.10% -14 Asset Class Six Months Ago International Equities 95.35% 93.09% Developed Markets 91.36% 90.11% Emerging Markets 3.99% 2.98% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 4.18% 5.11% Bonds 0.00% 0.00% Cash & Net Other Assets 0.47% 1.80% 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 Information section of this Q&A.

5 MARKET-SEGMENT DIVERSIFICATION Market Segment Six Months Ago Financials 24.32% 21.62% Industrials 19.35% 18.62% Health Care 12.66% 11.25% Consumer Discretionary 11.23% 10.32% Information Technology 11.19% 11.84% Consumer Staples 9.78% 12.96% Materials 7.96% 7.43% Energy 2.47% 2.62% Telecommunication Services 0.57% 1.04% Utilities 0.00% 0.00% Real Estate 0.00% 0.51% Other 0.00% 0.00% COUNTRY DIVERSIFICATION Country Six Months Ago United Kingdom 22.13% 23.33% Japan 18.35% 18.87% France 10.37% 8.53% Germany 8.68% 8.63% Switzerland 5.80% 4.98% Netherlands 5.00% 4.22% United States 4.44% 6.43% Ireland 3.79% 3.63% Sweden 3.78% 4.25% Spain 3.05% 3.21% Italy 1.78% 1.76% Australia 1.78% 1.90% Norway 1.30% 1.00% Hong Kong 1.25% 1.04% Taiwan 1.00% 1.00% Other Countries 7.50% LARGEST HOLDINGS Holding Roche Holding AG (participation certificate) Market Segment Six Months Ago Health Care 1.55% -- Unilever NV (NY Reg.) Consumer Staples 1.48% 1.41% Total SA Energy 1.42% 1.25% SAP SE Information Technology 1.36% 1.38% Bayer AG Health Care 1.36% 1.49% AIA Group Ltd. Financials 1.25% 1.04% British American Tobacco PLC (United Kingdom) Consumer Staples 1.25% 1.46% Prudential PLC Financials 1.24% 1.21% LVMH Moet Hennessy - Louis Consumer Vuitton SA Discretionary 1.18% -- ORIX Corp. Financials 1.12% 0.93% 10 Largest Holdings as a % of Net Assets 13.20% 13.65% 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 Information section of this Q&A.

6 FISCAL PERFORMANCE SUMMARY: Periods ending April 30, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Overseas Fund Gross Expense Ratio: 1.00% % -0.06% 13.55% 7.52% 8.91% 2.98% 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) % 24% 14% 61% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/04/ 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 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. 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 Vincent Montemaggiore is 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. Montemaggiore manages Fidelity Overseas Fund, Fidelity Advisor Overseas Fund, and Fidelity VIP Overseas. Additionally, he co-manages Fidelity International Growth Fund, Fidelity Advisor International Growth Fund, and Fidelity Series International Growth Fund, as well as an international growth fund available exclusively to Canadian investors, a sub-advised institutional international growth portfolio, and the developed market growth sleeves of Fidelity Total International Equity Fund, Fidelity Advisor Total International Equity Fund, and Fidelity Flex International Fund. Prior to assuming his current responsibilities, Mr. Montemaggiore co-managed Select Banking, after being sole manager on the fund from 2008 to He also assumed research analyst coverage responsibilities for large-cap and regional banks in Previously, Mr. Montemaggiore managed Select Industrial Equipment, after taking on research coverage of industrial and machinery stocks in He joined Fidelity full time in 2005 as an equity research analyst following the media industry. Before joining Fidelity, Mr. Montemaggiore worked as an investment banking analyst at de Guardiola Advisors, Inc. He also worked at Putnam Lovell Securities, Inc., where he focused on mergers and acquisitions within the financial services industry. He has been in the investments industry since Mr. Montemaggiore earned his bachelor of science degree in engineering from the University of Pennsylvania and his master of business administration degree from Columbia Business School. 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 June 30, Annualized 5 10 / LOF 1 Fidelity Overseas Fund Gross Expense Ratio: 1.00% % 7.00% 9.43% 3.66% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/04/ 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. It does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio. 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. 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