Strategic Advisers Emerging Markets Fund

Transcription

1 Strategic Advisers Emerging Markets Fund Key Takeaways For the fiscal year ending February 28, 2018, the Fund gained 30.23%, modestly trailing the 30.97% return of the benchmark MSCI Emerging Markets (EM) Index. The positioning of underlying managers vis-à-vis information technology stocks and China had a major impact on their relative performance this period. Versus the benchmark, the biggest detractors were sub-adviser M&G Investments and Lazard Emerging Markets Equity Fund. M&G underperformed due to poor selection in technology, primarily in China. Lazard was hurt by similar factors, and its value-driven investment strategy was out of favor. Sub-adviser FIAM SM was the top relative contributor, as its GARP (growth at a reasonable price) strategy outperformed the MSCI EM index by a sizable margin. Growth-oriented Fidelity Emerging Markets Fund also handily outpaced the index and was another leading contributor. In March, the Fund hired T. Rowe Price Associates, Inc. as a sub-adviser. Portfolio Manager Wilfred Chilangwa believes global growth trends and solid corporate earnings may continue to provide a positive fundamental environment for EM stocks, despite elevated valuations in certain sectors. MARKET RECAP Stocks entered 2018 reinforced by accelerating corporate earnings, synchronous global economic growth and optimism around U.S. tax reform. Volatility spiked in February, though, amid fear that interest rates could rise faster than expected. Nevertheless, the MSCI World ex USA Index gained 19.12% for the 12 months ending February 28, 2018, aided partly by a generally weak U.S. dollar. Within the index, growth- led value-oriented stocks, and small-caps bested largecaps. Certain election results in continental Europe (+24%) suggested ebbing political risk there, whereas bumpy Brexit negotiations and sterling strength hindered the U.K. (+15%). Central-bank accommodation helped Japan (+22%) overcome recent yen strength and outperform the rest of the Asia-Pacific group (+15%). Meanwhile, commodity-price volatility weighed on Canada (+7%). Sector-wise, information technology (+36%) was lifted by software, semiconductor and internetrelated names. Financials (+21%) rode rising interest rates that, at the same time, hurt real estate (+14%) and three other "bond proxy" sectors: consumer staples (+12%), utilities (+12%) and telecom services (+8%). Demand from China aided materials (+24%) and industrials (+24%). Energy (+14%) and health care (+10%) rallied from earlyperiod difficulty. Elsewhere, the MSCI Emerging Markets Index rose 30.97% for the year, notably supported by China plus Brazil, Russia and India. Shares are offered only to certain clients of Strategic Advisers, Inc. not available for sale to the general public Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Portfolio Manager Wilfred Chilangwa Fund Facts Trading Symbol: Wilfred Chilangwa Portfolio Manager FSAMX Start Date: September 30, 2010 Size (in millions): $5, Investment Approach Strategic Advisers Emerging Markets Fund (the Fund) is a multi-manager investment strategy that seeks capital appreciation by investing primarily in a broadly diversified portfolio of emerging-markets equity securities. The Fund provides diversified exposure to multiple investment vehicles including mutual funds, subadvised strategies and, at times, exchange-traded funds (ETFs) selected from what we believe are the best ideas of Strategic Advisers' research department. We evaluate the tradeoff between cost, liquidity and investment flexibility to determine the optimal investment mix. Our investment process emphasizes prudent manager selection based on the view that different investment approaches may outperform at different times over a full market cycle, and that combining these investment disciplines may result in a more consistent performance profile. We believe the ability to utilize the distinctive skills of a variety of managers helps provide investment diversification and also may provide the portfolio manager(s) more flexibility to invest more adeptly throughout the market cycle, and potentially allow for better risk management. Q: Wilfred, how did the Fund perform for the 12 months ending February 28, 2018 The Fund advanced 30.23%, modestly lagging the 30.97% return of the benchmark MSCI Emerging Markets Index but outpacing our peer group average. The positioning of several underlying managers vis-à-vis information technology stocks and China had a major impact on their relative performance the past 12 months. Q: What was the investment environment like during the review period Bolstered in part by a generally weaker U.S. dollar, emerging markets (EM) spearheaded the global stock rally. EM large-cap stocks outperformed their small-cap corollaries, and the EM growth segment topped its valueoriented counterpart. Emerging Asia was the top-performing region, led by robust returns from stocks traded in Hong Kong (+60%) and China (+42%). Among larger index members, South Africa (+42%), South Korea (+29%) and Russia (+29%) also posted strong results. From a sector perspective, information technology (+48%), an area favored by growth managers, was the top performer in the MSCI Emerging Markets Index, fueled largely by strength among internet-related firms based in China. The rise of technology companies represents a major reversal from earlier years, when banks, utilities and commodity producers dominated stock trading in the developing world. Interestingly, in 1995, when global investing in EM stocks started to accelerate, tech shares accounted for only 1.5% of the EM index, according to MSCI. Today, tech firms make up about 27% of the index. Elsewhere, the health care (+34%) and real estate (+33%) sectors also outperformed the MSCI EM index, while energy (31%) and financials (+31%) performed roughly in line. By contrast, more-defensive, "bond-proxy" sectors lagged, hampered largely by rising interest rates. Telecommunication services (+10%), utilities (+11%) and consumer staples (+18%) generated respectable gains but trailed the index by sizable margins. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 Q: How did your investment strategy fare in this environment I think the Fund's diversification across different investment styles, which includes substantial exposure to growthoriented managers, helped it stay relatively close to the benchmark. Manager selection and style diversification are key ways in which I seek to add value. Q: Which managers detracted versus the index The way in which managers were positioned relative to technology stocks and China had a major impact on their performance this period. We saw this with the Fund's biggest relative detractor: sub-adviser M&G Investments. M&G pursues an opportunistic, all-cap strategy that looks for investments that fall into one of four categories: deep cyclicals; companies that it believes have structural tailwinds; "compounders"; and quality. Unfortunately, this period its performance was mostly hampered by picks in technology, primarily in China. Selection in energy and industrials also hurt M&G's result, as did out-of-benchmark exposure to the United Kingdom, a market that significantly trailed the MSCI EM index. Lazard Emerging Markets Equity Fund also weighed on the Fund's relative performance. This manager's value-oriented approach was out of favor this period. Furthermore, it underperformed due to adverse selections in technology and consumer discretionary, along with an overweighting in telecom services. Country-wise, positioning in China and Brazil, as well as out-of-benchmark exposure to "frontier" market Pakistan, further dampened Lazard's results. Parametric Emerging Markets Fund and Brandes Emerging Markets Value Fund detracted about equally. Both struggled with unfavorable positioning in China, Mexico and in the technology sector. Parametric also was hurt by an allocation to Pakistan, while Brandes' value-driven strategy faced a stiff headwind amid a growth-led market. Q: How about contributors Sub-adviser FIAM was the top relative contributor. This manager's Select Emerging Markets Strategy is a riskmanaged GARP approach that combines bottom-up stock selection with a quantitative portfolio-construction process. For the period, FIAM beat the MSCI EM index by a healthy margin, led by strong stock selection in the consumer discretionary, financials and materials sectors. From a country perspective, this manager did its best work in China, India and South Africa. Growth-oriented Fidelity Emerging Markets Fund also handily outpaced the benchmark. Fidelity Emerging Markets Fund focuses on what the manager considers "best of breed" growth stocks underappreciated by the market. This period, its strong relative result was driven by picks in consumer discretionary and financials, along with favorable positioning in telecom services. At the country level, selections in China and South Africa, combined with beneficial positioning in Taiwan, added the most value. Two exchange-traded funds (ETFs) I held for riskmanagement purposes provided a major collective boost to performance. Our position in the ishares MSCI China ETF advanced by about 44% for the period, and our stake in the SPDR S&P China ETF rose 42%. I held these ETFs to partially offset the aggregate underweighting in China the largest single-country component in the index by our active managers. Q: Did you make any notable changes to the Fund this period Early in the period, we transitioned the assets from T. Rowe Price Emerging Markets Stock Fund to initiate a subadvisory relationship with that firm, running the same strategy. This shift was consistent with my larger goal of increasing the portion of the portfolio that is managed by sub-advisers, which, as of period end, stood at about 53%, up from 37% 12 months ago. Elsewhere, I continued to reduce allocations to managers that we thought had substantial exposure to countryspecific risk. Our goal in this regard is to position the portfolio so that it is more influenced by managers whose excess return versus their benchmarks comes from stockselection risk, rather than country or currency exposures. Q: What is your outlook as of period end The past year was a rare period in which an accelerating global economy was accompanied by growth stocks' substantial outperformance versus value stocks. It was somewhat reminiscent of the leadership of large-cap technology stocks in the late 1990s. Tech stocks led the way in emerging markets, and became the largest sector in the MSCI EM index. It's worth noting that the EM tech segment is now roughly four times the weight of energy and materials, two sectors more associated with value investing. Looking ahead, I think synchronous global growth and solid corporate earnings may continue to provide a positive fundamental environment for EM stocks, despite elevated valuations in certain sectors. In this environment, I plan to keep the portfolio well-diversified across investment styles while seeking to manage country and currency risk. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 ASSET ALLOCATION Wilfred Chilangwa on developments in China: "I think a key question for the performance of EM stocks over the coming year will be how slower economic growth in China will affect emerging markets more generally. "Under President Xi Jinping, China's 'growth at any cost' mentality has dissipated. The government is now much more focused on the quality of growth. The government is also implementing policies to reduce the rapid expansion of debt that has occurred since the financial crisis. "At the 19 th China Communist Party Congress that took place in October 2017, China's president reaffirmed that his main objective is to maintain stability. As a result, the government employed policy measures intended to curb excessive lending at the local government level and also through online consumer loan platforms. "Against this backdrop, the Fund's underlying managers remain optimistic about the fundamentals of China's economy. They are, however, concerned about stretched valuations, particularly among internet-related firms and the technology sector in general. "Another interesting development is MSCI's decision to include China A shares in its indexes beginning in June A shares are traded only on China's stock market and are not currently included in any of MSCI's indexes including the MSCI EM index. When A shares become part of the benchmark, it's likely that a substantial amount of assets will flow into them. Some of the Fund's managers have limited out-of-benchmark exposure to A shares now. Once A shares are included in the index, it will likely prompt them to increase their allocations. As a result, many managers are adding resources to research and track the A- share market." Asset Class Portfolio Weight Portfolio Weight Six Months Ago Equity Investments 99.20% 98.96% Equities 54.06% 48.99% Mutual Funds 34.69% 40.27% ETFs 10.45% 9.70% Bonds 0.00% 0.00% Cash & Net Other Assets 0.80% 1.04% 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. MANAGER ALLOCATION Manager Portfolio Weight Sub-Adviser Total 52.75% FIAM LLC 15.35% ACADIAN ASSET MANAGEMENT LLC 13.42% T ROWE PRICE 9.13% SOMERSET CAPT MGT 7.78% M&G INVESTMENTS 7.07% Top Mutual Fund Positions 43.23% Causeway Emerging Markets Fund 8.40% Fidelity Emerging Markets Fund 7.85% Fidelity Securities Lending Ca 7.03% ishares MSCI China ETF 5.71% Oppenheimer Developing Markets 2.61% SPDR S&P China ETF 2.54% Lazard Emerging Markets Equity 2.36% Goldman Sachs Emerging Markets 2.31% Parametric Emerging Markets Fu 2.22% ishares MSCI South Korea Index 2.20% Remaining Investments 4.02% Manager allocations are as of the end of the reporting period and may not be representative of the fund's current or future investments. Excludes money market investments. 4 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 FISCAL PERFORMANCE SUMMARY: Periods ending February 28, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Strategic Advisers Emerging Markets Fund Gross Expense Ratio: 1.32% % 2.53% 30.23% 8.84% 4.73% 3.91% MSCI Emerging Markets Index (Gross) 10.70% 3.36% 30.97% 9.37% 5.39% 4.20% Morningstar Fund Diversified Emerging Mkts 9.07% 2.77% 27.40% 7.90% 4.45% -- % Rank in Morningstar Category (1% = Best) % 39% 48% -- # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 09/30/ 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. 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 calendar-quarter performance. 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

6 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 Foreign securities are subject to interest-rate, currency-exchangerate, economic, and political risks, all of which may be magnified in emerging markets. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, economic or other developments. These risks may be magnified in foreign markets. The fund can invest in ETFs which may trade at a discount to their NAV. Fund of funds bear the risks of the investment strategies of their underlying funds. 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 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. MSCI World ex USA Index is a market-capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed markets outside the United States. 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 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. 6

7 Manager Facts Wilfred Chilangwa is a portfolio manager at Strategic Advisers, Inc. (SAI), a registered investment adviser and a Fidelity Investments company. 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. Chilangwa is responsible for managing Strategic Advisers International Fund, Strategic Advisers International II Fund, Strategic Advisers Emerging Markets Fund, Strategic Advisers International Multi-Manager Fund, Strategic Advisers Emerging Markets Fund of Funds, and the international subportfolio for Fidelity Portfolio Advisory Service model portfolios. He also leads the Fidelity Charitable Gift Fund (CGF) investment efforts within SAI, where he is responsible for the oversight of all CGF investment pools. Prior to assuming his current position in 2006, Mr. Chilangwa held various positions of increasing stature in SAI from 1997 to Previously, he was a senior fund analyst/international strategist from 2001 to 2006, and a senior fund analyst from 1997 to Before joining Fidelity in 1997, Mr. Chilangwa worked as a senior research analyst and assistant vice president in new product development for global investment and asset administration at State Street Corporation from 1992 to He has been in the investments industry since Mr. Chilangwa earned his bachelor of arts degree in physics and economics from Brandeis University and his master of arts degree in international economics and finance from Brandeis International Business School. He is also a Chartered Financial Analyst (CFA) charterholder. 7 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

8 PERFORMANCE SUMMARY: Quarter ending June 30, Annualized 5 10 / LOF 1 Strategic Advisers Emerging Markets Fund Gross Expense Ratio: 1.24% % 6.00% 4.51% 2.35% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 09/30/ 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. 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