Fidelity Disciplined Equity Fund

Transcription

1 Fidelity Disciplined Equity Fund Key Takeaways The fund's Retail Class shares gained 22.51% for the 12 months ending October 31, 2017, modestly lagging the 23.63% return of the benchmark S&P 500 index but finishing just ahead of the peer group average. The fund's exposure to stocks with cheaper valuations than the market average was challenged this period, as growth-oriented names outperformed and investors exhibited risk-off behavior. Relative to the S&P 500, stock picking within the consumer discretionary sector hurt most. In particular, an out-ofbenchmark stake in International Game was the biggest individual detractor. Elsewhere, choices in financials and materials also weighed on relative results. Conversely, stock selection in the information technology and energy sectors aided relative performance. Alex continues to view the value-stock downdraft as temporary and, at period end, is beginning to see market improvements. He believes his examination of factors such as valuation, capital deployment and momentum along with active input from Fidelity's fundamental research team may help keep the portfolio well-positioned for the future. MARKET RECAP The U.S. equity bellwether S&P 500 index gained 23.63% for the year ending October 31, Equity markets rose sharply following the November election and continued to rally through the end of February on optimism for President Trump's probusiness agenda. Stocks leveled off in March amid fading optimism and stalled efforts by Congress to repeal and replace the Affordable Care Act. Upward momentum soon returned and continued through period end amid positive consumer sentiment and other market indicators. The lone exception was a brief cooldown in August, when geopolitical tension escalated and uncertainty grew regarding the future of health care, tax reform and the debt ceiling. Sector-wise, information technology (+39%) performed best, surging as a handful of major index constituents posted strong returns. Financials gained 37%, riding an uptick in bond yields and a surge in banks. Materials (+29%) also did well, spurred by higher demand, especially from China. Conversely, consumer discretionary (+20%) lagged the broader market, as brick-and-mortar retailers continued to suffer from increased online competition. Rising interest rates held back real estate (+9%) and sluggish oil prices dragged on energy (+2%). Consumer staples (+4%) and telecommunication services (-1%) struggled due to investors' general preference for risk assets. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Manager Alex Devereaux Fund Facts Trading Symbol: Alex Devereaux Manager FDEQX Start Date: December 28, 1988 Size (in millions): $1, Investment Approach Fidelity Disciplined Equity Fund is a diversified domestic equity strategy with a large-cap core orientation that seeks capital growth by leveraging the strengths of both fundamental and quantitative investment disciplines. We look to add incremental value over time by employing a consistent and repeatable process driven by stock selection, while keeping sector weightings relatively close to the fund's benchmark. Our approach favors companies with improving fundamentals trading at reasonable valuations. Security selection is based on a series of quantitative investment models, along with input from Fidelity's fundamental research team. We leverage data from both inputs to construct a portfolio with a diversified mix of reasonably priced growth- and value-oriented investments that we believe have the potential to increase in value over time. Q: Alex, how did the fund perform for the fiscal year ending October 31, 2017 The fund's Retail Class shares gained 22.51% for the 12 months ending October 31, 2017, modestly lagging the 23.63% return of the benchmark S&P 500 index but finishing just ahead of the peer group average. Q: Please tell us about your investment process and what influenced fund results. As the period progressed, my process began to show relative results. However, the fund still lagged the benchmark for the year. As U.S. corporate profits continued to improve, our reliance on Fidelity's fundamental research and quantitative factors such as estimate revisions proved beneficial. There's still a lot of room for improvement, but I was encouraged by the positive performance of our stock-selection models at period end. Regardless of investment environment, the core of my investment philosophy is that information advantages are fleeting but good decisions persist and compound over time. I combine computer-aided quantitative models with input from Fidelity's experienced research team, and I look to buy stocks of companies that I view as having reasonable valuations supported by improving fundamentals. My quantitative investment models focus on valuation, earnings revisions, price momentum, capital deployment and "short interest," or how much of a stock has been sold short. High short interest is an indicator of negative sentiment surrounding a stock. I then overlay the models' output with Fidelity analysts' indepth fundamental research to test and calibrate my conviction in individual stocks and industry trends. Further, through rigorous portfolio construction, I leverage data from both inputs to create a sector-neutral, well-diversified fund with what I consider a good mix of reasonably priced growth- and value-oriented investments that I believe have the potential to increase in value over time. 2 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

3 Q: What challenges did you encounter this period Our exposure to stocks with cheaper valuations than the market average has continued to be challenged. In 2017, the market has heavily favored growth over value and exhibited risk-off, rather than risk-on investor behavior. Both of these trends have caused some headwinds for the fund, due to its tilt toward value. However, I still feel strongly that over the long haul our use of quantitative models that favor value, coupled with improving fundamentals, will ultimately be rewarded. Q: What in particular hampered relative results Stock picking within the consumer discretionary sector hurt most. In particular, an out-of-benchmark stake in International Game was our biggest individual detractor. Choices in financials and materials also weighed on the fund's relative results. At the beginning of the period International Game, a manufacturer and distributor of computerized gaming equipment, was a sizable overweighting due to its favorable valuation and momentum characteristics. The out-of-benchmark company reported weak quarterly financials with declining revenues, soft guidance and a large debt load, resulting in a -34% return for our stake this period. Following these quarterly results, earnings estimates were revised downward and the stock's momentum characteristics weakened, which no longer made the stock attractive. We exited the position in July. Going from what our policy defines as a maximum overweighting to a large underweight in e-commerce giant Amazon also hurt. At the beginning of the period, we were bullish on Amazon due to its favorable fundamental research model score assigned by Fidelity analysts and strong momentum characteristics. After a lackluster quarter at the end of October 2016, estimate revisions on the stock turned very negative as concerns around Amazon's ability to grow started to surface and price momentum also began to deteriorate. Without the support of momentum, Amazon's lofty valuation started to weigh on the stock within my framework and I began to sell the position in November of 2016, which eventually took Amazon to an underweighting. This positioning hurt performance as the stock rebounded with multiple strong quarters and also benefited from the market's general preference for growth in The top relative contributor came from our decision to avoid industrial conglomerate General Electric (GE). We sold our stake in GE in August of 2016 due to its expensive valuation and a timely downgrade from our internal fundamental analyst, who believed the company would face earnings headwinds due to poor acquisition strategy and discipline. The stock declined 28% the past 12 months. Our overweight stake in Bank of America (BofA) also contributed. We liked BofA's strong valuation, positive estimate revisions, good capital deployment and low short interest. The stock benefited from the surge in the financials sector; moreover, the company produced strong earnings on the back of trading revenue, cost cutting and higher interest rates. Litigation income received during the period also added to the fund's return. Q: Alex, what is your outlook as of October 31 I continue to view the value-stock downdraft as temporary and I'm beginning to see market improvements that should bode well for my process. The incorporation of Fidelity's fundamental research has added value and it's slowly becoming less difficult to get exposure to both value and momentum. That said, there are three questions I am constantly considering. First, is there any value left to be found simply through sector exposure Secondly, does momentum exposure continue to favor cheap stocks, which has a compounding effect, because it allows analysts to more comfortably stock pick within the value space And lastly, will volatility remain low or increase in the future I continue to believe our examination of factors such as valuation, capital deployment and momentum along with active input from Fidelity's fundamental research team may help keep the portfolio well-positioned for the future. Q: What helped Overall, stock selection in the information technology and energy sectors aided relative performance. 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 Alex Devereaux on Investing with Artificial Intelligence: "With the rise of big data and cloud computing, the use of artificial intelligence (AI) through machine learning (ML) techniques has become a prominent theme across many industries. ML is an application of AI that allows a computer program to automatically learn and improve, purely from access to data sets. "Currently, we see AI techniques being used in Amazon's Alexa app and Google's autonomously driven cars. Companies are exploring new ways to use these techniques to solve problems that were previously thought unsolvable, as well as create efficiencies in attempt to gain an edge. "The finance industry is no exception. Big data and ML are being used for Natural Language Processing (NLP) on company financial documents. This type of analysis may help identify companies with changing sentiment and, in some cases, it may even help identify possible fraud. "We are also exploring the use of ML techniques in creating and improving quantitative models, using large data sets of various factors to train a ML model to select stocks. We then use this analysis to determine which factors help predict future stock performance and whether the model can add value to a quantitative investment process. "Despite this potential, there are elements of investing that make some of these AI techniques more challenging. For example, financial markets are much less predictable than say marketing trends, so training a model within the financial space can be very challenging. "Recently at a large quantitative investing conference, a poll indicated that only 8% of the audience considered ML central to their investment process. This low response rate highlights the difficulties of using these techniques. Thus, we continue to take a hard look at integrating AI and ML techniques into our investment process, but will approach it with caution and a healthy amount of skepticism." Holding Market Segment Average Relative Relative Contribution (basis points)* General Electric Co. Industrials -1.22% 71 Bank of America Corp. Financials 0.61% 43 NRG Energy, Inc. Utilities 0.47% 34 Exxon Mobil Corp. Energy -1.45% 32 AT&T, Inc. * 1 basis point = 0.01%. Telecommunication Services LARGEST DETRACTORS VS. BENCHMARK Holding International Game PLC Amazon.com, Inc. United States Steel Corp. NVIDIA Corp. Freeport-McMoRan, Inc. * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Market Segment Consumer Discretionary Consumer Discretionary -1.16% 32 Average Relative Relative Contribution (basis points)* 0.50% % -46 Materials 0.19% % -38 Materials 0.29% -34 Six Months Ago Domestic Equities 95.02% 96.51% International Equities 3.64% 1.79% Developed Markets 1.27% 0.64% Emerging Markets 2.37% 1.15% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 1.34% 1.70% 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 10 LARGEST HOLDINGS Market Segment Six Months Ago 26.48% 21.52% Health Care 14.97% 16.16% Financials 12.71% 12.13% Consumer Staples 9.97% 10.97% Consumer Discretionary 9.93% 10.48% Industrials 8.32% 8.94% Energy 6.10% 5.41% Materials 4.53% 2.98% Utilities 3.04% 4.00% Real Estate 1.88% 3.40% Telecommunication Services 0.72% 2.33% Other 0.00% 0.00% Holding Apple, Inc. Alphabet, Inc. Class A Facebook, Inc. Class A Market Segment Six Months Ago 4.82% 4.50% 3.34% 3.08% 2.71% 2.23% Johnson & Johnson Health Care 2.54% 2.17% Berkshire Hathaway, Inc. Class B Financials 2.43% 2.29% Bank of America Corp. Financials 2.06% 1.42% Wells Fargo & Co. Financials 1.94% 1.92% Chevron Corp. Energy 1.78% 1.74% UnitedHealth Group, Inc. Health Care 1.75% 1.63% Microsoft Corp. 1.72% 2.18% 10 Largest Holdings as a % of Net Assets 25.08% 23.52% 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 October 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Disciplined Equity Fund Gross Expense Ratio: 0.68% % 17.28% 22.51% 8.69% 14.23% 5.03% S&P 500 Index 9.10% 16.91% 23.63% 10.77% 15.18% 7.51% Morningstar Fund Large Blend 8.25% 15.50% 22.34% 9.01% 13.70% 6.62% % Rank in Morningstar Category (1% = Best) % 65% 51% 91% # of Funds in Morningstar Category ,394 1,214 1, Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/28/ 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. 5 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

6 Definitions and Important immediately under the fund name in the Performance Summary. 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. 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. S&P 500 is a market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. Should not be construed or used as a recommendation for any sector or industry. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed 6

7 Manager Facts Alex Devereaux is a portfolio manager at Fidelity Management & Research Company (FMRCo), the investment advisor for Fidelity's family of mutual funds. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, Mr. Devereaux manages Fidelity Disciplined Equity Fund (since 2013). Prior to assuming his current responsibilities, Mr. Devereaux was a quantitative analyst from 2005 to During this time, his responsibilities included alpha modeling, risk management, and portfolio construction within the Quantitative Research group. Before joining Fidelity in 2005, Mr. Devereaux was a senior quantitative analyst at Evergreen Investments from 2004 to 2005, a quantitative analyst at Gartmore Global Investments from 2000 to 2004, and a consultant at FactSet Research Systems from 1998 to He has been in the investments industry since Mr. Devereaux earned his bachelor of business administration degree from the University of Vermont and his master of science in finance degree from Boston College. 7 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

8 PERFORMANCE SUMMARY: Quarter ending September 30, Annualized 5 10 / LOF 1 Fidelity Disciplined Equity Fund Gross Expense Ratio: 0.68% % 8.43% 13.24% 5.16% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/28/ 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.