Fidelity Stock Selector Mid Cap Fund

Transcription

1 Fidelity Stock Selector Mid Cap Fund Key Takeaways For the semiannual reporting period ending May 31, 2018, the fund's Retail Class shares gained 5.45%, outpacing the 3.28% advance of the benchmark S&P MidCap 400 Index. The managers' focus on quality and GARP (growth at a reasonable price) added value in an advancing but more volatile market for mid-cap stocks. Stock selection in eight of 11 market sectors added value the past six months, most notably in financials, consumer discretionary, health care and energy. Conversely, picks in the real estate sector detracted this period. As of May 31, the managers believe any further gains in the market will be closely tied to earnings growth rather than valuation expansion, given their outlook for fairly solid economic and corporate-earnings growth amid elevated stock valuations. On March 1, 2018, Ali Khan was named a Co-Manager of the fund, succeeding Christopher Lin in managing the information technology and telecommunication services sleeves. MARKET RECAP The U.S. bellwether S&P 500 index returned 3.16% for the six months ending May 31, 2018, amid a resurgence of volatility in stocks that challenged the multiyear bull market. The steady growth seen throughout 2017 extended into the new year, as investors remained upbeat on hopes of continued strong economic and earnings growth. Stocks surged 5.73% in January alone. February was a decidedly different story, though, as volatility spiked amid concern that rising inflation would prompt the U.S. Federal Reserve to pick up the pace of interest rate hikes. The index returned -3.69% for the month, its first negative result since October 2016, and lost further ground in March on fear of a global trade war. The market stabilized in April and ended the period with a solid gain in May. From a style and market-cap perspective, growth extended its lead over value, while smaller stocks reigned. By sector, information technology gained about 11%, boosted by strong earnings growth from several major index constituents. Consumer discretionary (+10%) also stood out, primarily driven by retailers (+25%). Energy rose 11% amid higher oil prices. Conversely, notable laggards included some defensive groups consumer staples (-11%), utilities (-8%), telecommunication services (-5%) and real estate (-4%) that struggled amid a general preference for risk. Financials, health care and materials fared a bit better but each still lost modest ground. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A Robert Stansky Co-Manager Fund Facts Trading Symbol: FSSMX Shadman Riaz Co-Manager Start Date: February 20, 1996 Size (in millions): $2, Investment Approach Fidelity Stock Selector Mid Cap Fund is a diversified domestic equity strategy focused on the mid-cap segment of the market. The fund employs a team of portfolio managers, with each member dedicated to one or more of the major market sectors, plus a group leader who is responsible for general team oversight, cash management and risk monitoring. Portfolio sector weightings are kept similar to those of the index in an effort to add value through active stock selection our core competency and also to minimize the risks associated with sector or market timing. Focused sector expertise, supported by our deep research infrastructure, is combined with disciplined portfolio construction to provide investment-process consistency in seeking to deliver attractive riskadjusted returns over time. Our sector-based structure preserves individual creativity and accountability, core to Fidelity's investment culture. An interview with Co-Portfolio Manager Robert Stansky, with additional comments by Co-Manager Shadman Riaz Q: Bob, how did the fund perform for the six months ending May 31, 2018 The fund's Retail Class shares gained 5.45%, outpacing the 3.28% advance of the benchmark S&P MidCap 400 Index. However, the fund trailed the average result of peers focused on the mid-cap growth space. Looking back a bit further, for the trailing 12 months, the fund posted a double-digit gain that, once again, topped the benchmark but lagged the peer group average. Q: What was notable about the period I think our success this period reaffirmed the value of our focus on quality and GARP (growth at a reasonable price), coupled with our managers' sector-specific expertise. The fund's outperformance came against a backdrop of a volatile benchmark that rallied in December and January, sold off sharply in February on concerns about rising inflation and interest rates, and then recovered to post fresh all-time highs near period end. As a reminder, the fund utilizes eight sector-focused comanagers who are charged with adding value through security selection, building the portfolio stock by stock. Our philosophy is that stock selection has a higher probability of success and repeatability than trying to time the market or rotating among sectors. As a result, we take a sector-neutral approach to investing, but overweight and underweight at the industry and individual stock levels. As head of the group, I'm responsible for overall risk management, sector rebalancing and maintaining a disciplined portfolio-construction process. This period, the growth side of the market once again strongly outperformed value stocks, as it has fairly consistently since early Broadly speaking, the fund's emphasis on GARP means that we maintain a relatively balanced focus on growth and value. Consequently, I was happy to see us outpace our benchmark which also includes a mix of growth and value stocks by such a comfortable margin. Also, I think we did well to stay fairly close to our peer group average, which tracks funds specifically focused on mid-cap growth stocks. Q: What specific factors lifted the fund's performance versus its benchmark Strong stock selection primarily drove the fund's outperformance, with eight of 11 market sectors adding value 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 the past six months, most notably financials, consumer discretionary, health care and energy. At the stock level, three of the fund's four largest relative contributors were from the diversified financials part of the financials sector, managed by Co-Manager Pierre Sorel. Market-maker Virtu Financial, an out-of-benchmark position, took honors as our top relative contributor. In February, the company reported better-than-expected fourth-quarter earnings, triggering a strong advance in its share price. The solid earnings report seemed to vindicate Virtu's decision to acquire rival KCG, a deal completed in July Virtu stock gained about 103% for the six months overall. Seeing more unrecognized potential here, Pierre added to the fund's position in Virtu shares by period end. HollyFrontier, a petroleum refiner in which the fund had an overweighting, also contributed significantly. According to Co- Manager Shadman Riaz, who oversees the fund's energy sleeve, the stock started the period with a relatively inexpensive valuation. Rising margins for crude products and the company's decision to again start returning capital to shareholders through share buybacks propelled the shares to a 75% gain. We trimmed our position here by period end but remained overweighted. Later in this report, Shad discusses the energy environment and outlook in more detail. Other diversified financials holdings among the fund's top relative contributors included OneMain Holdings and E*Trade Financial, both non-benchmark positions. Pierre reports that consumer finance provider OneMain saw its share price rise in early January, when private-equity firms Apollo Asset Management and Varde Partners agreed to buy a 40.5% stake in OneMain previously held by Fortress Investment Group. This removed technical pressure on OneMain's stock, as Fortress had been slowly selling OneMain shares. Meanwhile, shares of online broker E*Trade advanced fairly steadily this period, aided by higher equity trading volumes. Mirshekari maintained a positive longer-term outlook on the stock based on the firm's growing project backlog and forthcoming capital allocation strategy. A small non-benchmark stake in Micro Focus International which was purchased for the fund in February, before Co- Manager Ali Khan joined the fund worked against us as well. The company 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, which was the largest deal in Micro Focus' history. The integration proved challenging, with revenue declining faster than anticipated amid heavy sales-force attrition. Ali considered these difficulties temporary and maintained the position. Q: What's your outlook as of May 31, Bob Given our outlook for a fairly solid economic backdrop and healthy corporate earnings, but also relatively high equity valuations and profit margins, we believe any further gains in the stock market will be closely tied to earnings growth rather than valuation expansion. In view of their sector-specific expertise, we believe our managers are well-positioned to identify opportunities in an environment where we think earnings growth is likely to be increasingly important. Q: What about detractors Picks in the real estate sector detracted from relative performance this period, as did materials to a lesser extent. Among individual holdings, the fund's result versus the benchmark was hurt most by Co-Manager Eddie Yoon's decision to avoid Abiomed, as the stock surged 99% this period. In January, the maker of the Impella line of minimally invasive heart pumps released preliminary fiscal third-quarter results indicating a 34% rise in revenue. In February, Abiomed raised its fiscal 2018 revenue estimate to $583 million. Later that month, the U.S. Food and Drug Administration (FDA) approved use of the firm's popular ventricular-support devices for broader application. Despite this run of good news, Eddie kept his distance because he thought the stock was far too expensive by most traditional measures. An overweighting in Aecom also detracted. The company provides engineering, construction and consulting services for industrial, government and other large clients. Mixed recent earnings stemming from project execution and a portfolio review kept the stock range-bound. However, Co-Manager John 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 Shadman Riaz on the energy environment and outlook: "The past year marked a period of fundamental improvement for the oil market. Demand increased, OPEC sustained its production cuts, Venezuela and Libya saw fewer supply disruptions, and for the first time in many years, geopolitical developments added an additional premium to the price of oil, as the U.S. exited the Iran nuclear deal in May "West Texas Intermediate crude oil climbed from about $57 per barrel to a peak of about $72 a barrel in late May, hitting multiyear highs, higher than my peak assumption of $60 a barrel based purely on fundamentals. The fund's energy holdings returned 35.05% for the six months ending May 31, significantly outpacing the 23% return of the energy names in our benchmark. "I look to avoid making an explicit bet on oil and gas prices, and instead focus on capital-efficient companies I believe can successfully navigate the energy cycle and grow over time. This period, I think the fund's benchmark-beating return in energy reflected the quality of our energy holdings. "As of period end, I believe we are in the midst of a gradual recovery for oil prices, as the reductions in capital expenditures the past three years could translate into a lower trajectory for oil production and set the stage for higher oil prices. "It remains to be seen how much oil prices ultimately will recover, given the ability of the North American oil industry to quickly add supply, as well as the potential for OPEC and Russia to loosen the reins on production restraint. "For now, I believe in the 'lower-or-medium-oilprices-for-longer' scenario, and I remain comfortable with our holdings." Holding Virtu Financial, Inc. Class A Market Segment Average Relative Weight Relative Contribution (basis points)* Financials 0.41% 40 HollyFrontier Corp. Energy 0.56% 34 OneMain Holdings, Inc. E*TRADE Financial Corp. Avis Budget Group, Inc. * 1 basis point = 0.01%. Financials 1.42% 27 Financials 0.99% 26 Industrials 0.55% 25 LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment Average Relative Weight Relative Contribution (basis points)* Abiomed, Inc. Health Care -0.63% -44 AECOM Industrials 1.40% -24 American Airlines Group, Inc. Micro Focus International PLC Industrials 1.31% -22 Information Technology 0.17% -21 Essent Group Ltd. Financials 0.48% -18 * 1 basis point = 0.01%. 4 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 ASSET ALLOCATION Asset Class Portfolio Weight Index Weight Relative Weight Relative Change From Six Months Ago Domestic Equities 91.32% 97.73% -6.41% -1.60% International Equities 5.38% 2.27% 3.11% -0.11% Developed Markets 4.96% 2.05% 2.91% 0.63% Emerging Markets 0.42% 0.22% 0.20% -0.74% Tax-Advantaged Domiciles 0.00% 0.00% 0.00% 0.00% Bonds 0.00% 0.00% 0.00% 0.00% Cash & Net Other Assets 3.30% 0.00% 3.30% 1.71% 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. MARKET-SEGMENT DIVERSIFICATION Market Segment Portfolio Weight Index Weight Relative Weight Relative Change From Six Months Ago Financials 15.95% 16.69% -0.74% 0.16% Information Technology 15.55% 16.59% -1.04% -0.29% Industrials 13.45% 15.28% -1.83% -0.45% Consumer Discretionary 12.88% 12.52% 0.36% -0.50% Real Estate 9.75% 9.15% 0.60% 0.31% Health Care 8.56% 7.86% 0.70% 1.01% Materials 7.22% 7.16% 0.06% -0.10% Energy 5.32% 5.74% -0.42% -0.36% Utilities 4.56% 5.62% -1.06% -0.97% Consumer Staples 3.23% 3.25% -0.02% 0.14% Multi Sector 0.14% % -0.68% Telecommunication Services 0.07% 0.13% -0.06% 0.00% Other 0.00% 0.00% 0.00% 0.00% 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

6 10 LARGEST HOLDINGS Holding Market Segment Portfolio Weight Portfolio Weight Six Months Ago Capital One Financial Corp. Financials 2.51% 2.42% Huntington Bancshares, Inc. Financials 2.41% 2.14% AECOM Industrials 1.71% 1.75% OneMain Holdings, Inc. Financials 1.71% 1.14% Orbital ATK, Inc. Industrials 1.64% 0.72% HollyFrontier Corp. Energy 1.58% 0.93% Allison Transmission Holdings, Inc. Industrials 1.41% 0.61% Steel Dynamics, Inc. Materials 1.38% 1.32% First Horizon National Corp. Financials 1.28% -- Great Plains Energy, Inc. Utilities 1.17% 1.00% 10 Largest Holdings as a % of Net Assets 16.79% 14.23% 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 May 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Stock Selector Mid Cap Fund Gross Expense Ratio: 0.70% % 4.50% 16.12% 8.69% 11.15% 7.26% S&P MidCap 400 Index 3.28% 3.05% 14.86% 10.25% 12.17% 9.93% Morningstar Fund Mid-Cap Growth 6.41% 5.85% 18.74% 9.34% 11.95% 8.64% % Rank in Morningstar Category (1% = Best) % 59% 68% 82% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 02/20/ 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. 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. The securities of smaller, less well-known companies can be more volatile than those of larger companies. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. 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. Initial offering of the Fidelity Stock Selector Mid Cap Retail Class took place on 6/12/12. Returns prior to that date are those of the FA Stock Selector Mid Cap Class I and reflect the Class I's expense ratio. Had the Stock Selector Mid Cap Retail Class expense ratio been reflected, total returns would have been lower. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. S&P MidCap 400 Index is a market-capitalization-weighted index of 400 mid cap stocks of U.S. companies chosen for market size, liquidity, and industry group representation. 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 topperforming 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 7

8 Manager Facts Robert Stansky is a group leader and 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. Stansky leads the Stock Selector Large Cap team and serves as the lead portfolio manager of Fidelity VIP Contrafund Portfolio, Fidelity and Fidelity Advisor Balanced Fund, Fidelity Series All Sector Equity Fund, Fidelity and Fidelity Advisor Stock Selector Mid Cap Fund, and Fidelity VIP Balanced Portfolio. Prior to assuming his current responsibilities, Mr. Stansky managed Fidelity's Magellan Fund from 1996 to Previously, he managed Fidelity Growth Company Fund, Fidelity Advisor Equity Growth Fund, and Fidelity Growth Strategies, as well as an institutional portfolio for FMR Co. Mr. Stansky also served as an analyst and portfolio assistant on Magellan Fund and as an analyst in FMR Co.'s Equity research department. He has been in the investments industry since joining Fidelity in Mr. Stansky earned his bachelor of science degree in business from Nichols College and his master of business administration degree in finance from New York University. Shadman Riaz 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 co-manages Fidelity Series Small Cap Opportunities Fund, Fidelity Stock Selector Small Cap Fund, Fidelity Value Fund, Fidelity Advisor Value Fund, Fidelity Advisor Stock Selector Mid Cap Fund, and Fidelity Low-Priced Stock Fund. Prior to assuming his current position in January 2009, Shadman served as an equity analyst in FMRCo's Equity division from 2006 to 2008 and as a high income analyst in FMRCo's High Income division from 2001 to Before joining Fidelity in 2001, he held various other roles, including that of a financial analyst at Goldman Sachs & Co. from 1996 to 1999, as well as internships at Bain & Co. and an internet startup. He has been in the investments industry since Shadman earned his bachelor of science degree magna cum laude in actuarial science and finance from the University of Pennsylvania, and his master of business administration degree from Harvard 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 Stock Selector Mid Cap Fund Gross Expense Ratio: 0.70% % 9.54% 11.73% 7.95% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 02/20/ 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