Fidelity Total Emerging Markets Fund

Transcription

1 QUARTERLY FUND REVIEW AS OF SEPTEMBER 30, 2017 Fidelity Total Emerging Markets Fund Investment Approach Fidelity Total Emerging Markets Fund is a diversified emerging-markets (EM) strategy that seeks income and capital growth by investing across the capital structure, targeting a 60/40 balanced mix of equity and debt securities. We employ a disciplined investment process designed to emphasize security and country selection as well as asset allocation strategic shifts around the fund's neutral asset mix to capitalize on relative-value opportunities in the markets in seeking to provide attractive risk-adjusted returns. In managing the debt portion of the portfolio, we combine top-down "macro" analysis with bottomup security selection to uncover attractive investment opportunities. Debt selection is used as a means of complementing equity country exposure to expand the fund's geographic diversification. For the equity portion, we take a sector-neutral approach that emphasizes active stock selection by dedicated sector managers as the primary source of excess return. Our investment team works together to identify attractive opportunity sets, supported by in-depth fundamental and macroeconomic analysis that leverages Fidelity's global research capabilities. PERFORMANCE SUMMARY Cumulative 3 Month YTD 1 Year Annualized 3 Year 5 Year 10 Year/ LOF 1 Fidelity Total Emerging Markets Fund Gross Expense Ratio: 1.62% % 23.18% 17.73% 6.66% 6.07% 6.60% MSCI Emerging Markets Index (Gross) 8.04% 28.14% 22.91% 5.28% 4.36% 4.77% Fidelity Total Emerging Markets Composite Index 5.78% 20.07% 15.11% 5.77% 4.48% 5.52% Morningstar Fund Diversified Emerging Mkts 7.32% 26.19% 19.93% 3.86% 4.09% -- % Rank in Morningstar Category (1% = Best) % 14% 18% -- # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/ This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent fiscal year. This fund has a short term trading fee 1.50% for shares held less than 90 days. 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. For definitions and other important information, please see the Definitions and Important Information section of this Fund Review. FUND INFORMATION Manager(s): Team Managed Trading Symbol: FTEMX Start Date: November 01, 2011 Size (in millions): $ Morningstar Category: Fund Diversified Emerging Mkts 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. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Not FDIC Insured May Lose Value No Bank Guarantee

2 Market Review For the three months ending September 30, 2017, the Fidelity Total Emerging Markets Composite Index SM consisting of 60% equities and 40% debt gained 5.78%. Separately, emergingmarkets (EM) equity and debt investments advanced about 8% and 2%, respectively. Both asset classes generally benefited from continued synchronized expansion in global economic activity, which sustained investors' appetite for risk assets. Moreover, a continued flattening of the yield curve this quarter a result of a decline in 30-year interest rates also supported EM debt. EM equities were bolstered by some of the category's largest stock markets, namely Brazil (+23%) and (+15%), as well as Russia (+18%). Brazil's economy continued to improve after experiencing a deep recession over the past several years. Brazilian assets rallied this quarter when the country's former president was convicted and sentenced on corruption charges. This action prevents him from running in the presidential election next year, thereby reducing the chances that the reform movement in Brazil will fully derail. Russian stocks rose after U.S. sanctions, signed into law in August, appeared to have a limited fundamental impact. In addition, an undervalued ruble and an uptick in commodity prices made Russian equities especially attractive. Meanwhile, continued improving economic growth supported Chinese stocks, particularly those in the technology sector. Looking elsewhere, Chile (+17%) and Poland (+10%) topped the broader market. Investors remained hopeful that Chile's former president, Sebastian Pinera, could be re-elected in November, bringing with him market-friendly reform. The Polish government's pro-business policies, as well as improved consumer confidence and positive currency movements, buoyed the country's equities this period. While equity performance among countries in the Composite index was largely positive, Indonesia returned -1% the past three months. High valuations and lackluster corporate earnings growth were partly to blame for the market's poor performance. Turning to EM debt, top performers the past three months included smaller, higher-yielding members El Salvador (+10%), Belize (+8%) and Suriname (+7%). Elsewhere, Ukrainian bonds advanced about 7%. In September, the country issued its first sovereign bond since restructuring its debt in 2015, drawing widespread demand. In addition, reforms are progressing due to the influence of the International Monetary Fund (IMF), which is providing financing support. The only country in the EM debt index to decline during the third quarter was Venezuela, which returned about -11%. Geopolitical tension heightened as Venezuelan President Nicolas Maduro and his associates moved to consolidate power in July. Subsequently, the U.S. issued a number of sanctions against the country, including banning U.S. citizens and banks from buying newly issued bonds from the Venezuelan government or its state-owned oil company Petroleos de Venezuela. 25% EM Equity EM Debt 22.91% 20% 15% 10% 8.04% 5% 0% 2.38% 4.15% -5% Q Yr 2 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

3 Performance Review For the third quarter of 2017, the fund's Retail Class shares gained 6.87%, outpacing the 5.78% return of the Fidelity Total Emerging Markets Composite Index SM. Versus the Composite, security selection in the EM equity sleeve contributed most, with choices in EM debt and our allocation of assets overweighting equities and underweighting debt also boosting relative performance, but to a lesser degree. Within the equity sleeve, an out-of-index stake in online retail firm B2W Companhia Digital was the biggest individual relative contributor. Our holdings in B2W turned in a strong result, along with the Brazilian market. Elsewhere, it helped to overweight state-owned Russian banking and financial services firm Sberbank, as we were bullish on EM financials. Here, we liked stocks trading at a sizable discount, as well as banks in large markets we thought would benefit from interest rate hikes. Fortunately for the fund, Sberbank and other Russian stocks gained ground this quarter due to an uptick in crude oil prices and diminished fears about the impact of U.S.- imposed sanctions. Turning to the EM debt subportfolio, the largest relative contributor was security selection in Venezuela, although that positive was somewhat offset by our overweighting here. Despite the market's poor result the past three months, we remained overweighted based on our expectation that Venezuela would continue to service its debt, thus rendering the bonds underpriced for the risk, in our view. Elsewhere, overweightings in Ukraine and El Salvador were additive. Our investments in Ukrainian GDP (gross domestic product) warrants proved a big positive. Unlike traditional debt securities, which are linked to interest rates, GDP warrants are tied to the economic growth of the issuer. Meanwhile, investors hungry for risk were attracted to the higheryielding bonds issued by El Salvador. Turning to asset allocation: In March 2016, we moved to an overweighting in EM equity on the premise that the valuation differential relative to EM debt and pervasive pessimism toward EM equity provided the potential for equities to outperform. We held that overweighting in EM equity and corresponding underweighting in EM debt for the balance of 2016 and well into This boosted our performance versus the Composite index, as equities handily topped debt the past three months. ASSET ALLOCATION PERFORMANCE SUMMARY Asset Class EM Equity Benchmark MSCI Emerging Markets (G) Average Contribution (basis points)* 8.2% 72 EM Debt JPM EMBI Global -10.2% 71 TOTAL VALUE ADDED CASH & OTHER ASSETS OTHER ADJUSTMENTS Fid Total EM Comp Idx -2.0% % % 1 EXPENSES Total Value Added 112 *1 basis point = 0.01%. 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. LARGEST CONTRIBUTORS VS. BENCHMARK B2W Companhia Global do Varejo Sberbank of Russia sponsored Hon Hai Precision Industry Co. Ltd. (Foxconn) Average Contribution (basis points)* Brazil 0.56% 32 Russia 0.98% 25 Taiwan -1.20% com, Inc. 0.39% 11 Sinotruk Hong Kong Ltd. 0.18% 11 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Baidu.com, Inc. sponsored Average Contribution (basis points)* -1.04% -26 Tencent s Ltd % -17 Banco Bradesco SA Brazil -0.81% -16 U.S. Treasury Bonds 2.875% 11/15/46 JD.com, Inc. sponsored * 1 basis point = 0.01%. United States 1.76% % For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

4 Outlook and Positioning While our conviction in EM stocks as of September 30 is high, as reflected in our overweighting, we remain below the maximum allowed equity allocation of 80%. We have purposely left some cushion to further increase the equity allocation in the event that we revisit lower stock prices. While we believe the preponderance of evidence suggests a positive turn in EM fundamentals, some notable risks remain, as we see it. First, we are mindful of the very strong return EM equities since the recent low in January The magnitude of return over a relatively short period of time could be enough to dissuade investors, or leave the market susceptible to profit-taking. Secondly, emerging markets have no doubt been a beneficiary of the relatively low level of market volatility, and could be vulnerable should this trend reverse. Outside of a change in the path of economic fundamentals, a source of higher market volatility could be geopolitical risk, some of which is generally known North Korea and the Middle East, for example but associated with a wide range of potential outcomes. In any case, our position leaves room for an additional equity allocation should we determine the opportunity presents itself. Importantly, our decision on EM equities is made not only on the basis of fundamentals, but also relative to the appeal of EM debt. The opportunity cost of holding less debt and more equity remains low, in our view. Additionally, the low interest rate environment is supportive of local EM assets as capital flows to emerging markets in search of higher returns. If we are correct about improvement in EM fundamentals, asset flows into emerging markets should be further supported, to the greater benefit of EM equities. We believe both debt and equity markets continue to offer plentiful security-selection opportunities. It is worth noting that, over the fund's history, most of the excess return has come from security selection. When we discuss asset allocation as a team, we place heavy emphasis on our assessment of which market offers the greater potential for security-selection opportunity. As of quarter end, we think equity has the edge there as look to the year ahead. TRENDED ASSET ALLOCATION 100% 80% 60% 40% 20% 0% Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Equities Bonds Cash & Net Other Assets Source: FMRCo. COUNTRY DIVERSIFICATION Apr-16 Portfolio Aug-16 Dec-16 Apr-17 Aug-17 Change From Prior Quarter 12.41% -0.40% Korea (South) 8.22% -1.46% Brazil 7.59% 0.83% Hong Kong 7.02% 0.34% United States 6.81% 0.97% India 5.52% -0.16% Russia 5.46% 0.96% Taiwan 4.99% 0.23% South Africa 4.68% 0.37% Mexico 3.67% -0.12% Turkey 3.15% 0.07% Argentina 2.18% 0.43% Indonesia 2.04% -0.04% Ukraine 1.72% 0.18% Lebanon 1.50% 0.06% United Arab Emirates 1.42% 0.21% Venezuela 1.06% -0.10% 4 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

5 LARGEST OVERWEIGHTS ICE E-mini MSCI Emerging Markets Index Contracts U.S. Treasury Bonds 2.875% 11/15/46 United States 1.92% United States 1.70% Sberbank of Russia sponsored Russia 1.15% Largan Precision Co. Ltd. Taiwan 0.97% Argentine Republic 7.5% 4/22/26 Argentina 0.85% LARGEST UNDERWEIGHTS Samsung Electronics Co. Ltd. Korea (South) -3.74% Taiwan Semiconductor Manufacturing Co. Ltd. sponsored Taiwan -2.35% Tencent s Ltd % Construction Bank Corp. (H Shares) Baidu.com, Inc. sponsored -1.39% -1.35% 10 LARGEST HOLDINGS Tencent s Ltd. Alibaba Group Ltd. sponsored Sberbank of Russia Naspers Ltd. Class N U.S. Treasury Bonds 2.875% 11/15/46 Largan Precision Co. Ltd. JD.com, Inc. sponsored Russia South Africa United States Taiwan Taiwan Semiconductor Manufacturing Co. Taiwan Ltd. Industrial & Commercial Bank of Ltd. (H Shares) Itau Unibanco SA sponsored 10 Largest s as a % of Net Assets Brazil 17.84% Total Number of s 448 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. s do not include money market investments. 3-YEAR RISK/RETURN STATISTICS Portfolio Index Beta Standard Deviation 11.16% 11.23% Sharpe Ratio Tracking Error 2.20% -- Information Ratio R-Squared ASSET ALLOCATION Asset Class Portfolio Change From Prior Quarter International Equities 66.36% -1.06% Emerging Markets 64.25% -1.06% Developed Markets 2.11% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 2.28% 1.66% Bonds 28.56% 0.49% Cash & Net Other Assets 2.80% -1.09% 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. EQUITY CHARACTERISTICS Valuation Portfolio Index Price/Earnings Trailing 17.6x 15.5x Price/Earnings (IBES 1-Year Forecast) 14.0x 12.6x Price/Book 1.8x 1.8x Price/Cash Flow 8.7x 7.8x Return on Equity (5-Year Trailing) 10.5% 11.3% Growth Sales/Share Growth 1-Year (Trailing) 11.3% 9.8% Earnings/Share Growth 1-Year (Trailing) 9.3% 10.4% Earnings/Share Growth 1-Year (IBES Forecast) 31.9% 27.8% Earnings/Share Growth 5-Year (Trailing) 12.6% 11.1% Size ed Average Market Cap ($ Billions) ed Median Market Cap ($ Billions) Median Market Cap ($ Billions) For definitions and other important information, please see Definitions and Important Information section of this Fund Review.

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. EQUITY CHARACTERISTICS Earnings-Per-Share Growth measures the growth in reported earnings per share over the specified past time period. Median Market Cap identifies the median market capitalization of the portfolio or benchmark as determined by the underlying security market caps. Price-to-Book (P/B) Ratio is the ratio of a company's current share price to reported accumulated profits and capital. Price/Cash Flow is the ratio of a company's current share price to its trailing 12-months cash flow per share. Price-to-Earnings (P/E) Ratio (IBES 1-Year Forecast) is the ratio of a company's current share price to Wall Street analysts' estimates of earnings. Price-to-Earnings (P/E) Ratio Trailing is the ratio of a company's current share price to its trailing 12-months earnings per share. Return on Equity (ROE) 5-Year Trailing is the ratio of a company's last five years historical profitability to its shareholders' equity. Preferred stock is included as part of each company's net worth. Sales-Per-Share Growth measures the growth in reported sales over the specified past time period. ed Average Market Cap identifies the market capitalization of the average equity holding as determined by the dollars invested in the portfolio or benchmark. ed Median Market Cap identifies the market capitalization of the median equity holding as determined by the dollars invested in the portfolio or benchmark. 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 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 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. Fidelity Total Emerging Markets Composite Index is a customized blend of unmanaged indexes, weighted as follows: MSCI Emerging Markets Index - 60%; and J.P. Morgan Emerging Markets Bond Index Global - 40%. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar 6

7 3-YEAR RISK/RETURN STATISTICS Beta is a measure of the volatility of a fund relative to its benchmark index. A beta greater (less) than 1 is more (less) volatile than the index. Information Ratio measures a fund's active return (fund's average monthly return minus the benchmark's average monthly return) in relation to the volatility of its active returns. R-Squared measures how a fund's performance correlates with a benchmark index's performance and shows what portion of it can be explained by the performance of the overall market/index. R- Squared ranges from 0, meaning no correlation, to 1, meaning perfect correlation. An R-Squared value of less than 0.5 indicates that annualized alpha and beta are not reliable performance statistics. Sharpe Ratio is a measure of historical risk-adjusted performance. It is calculated by dividing the fund's excess returns (the fund's average annual return for the period minus the 3-month "risk free" return rate) and dividing it by the standard deviation of the fund's returns. The higher the ratio, the better the fund's return per unit of risk. The three month "risk free" rate used is the 90-day Treasury Bill rate. Standard Deviation is a statistical measurement of the dispersion of a fund's return over a specified time period. Fidelity calculates standard deviations by comparing a fund's monthly returns to its average monthly return over a 36-month period, and then annualizes the number. Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how the fund actually performed, but merely indicates the volatility of its returns over time. Tracking Error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark, creating an unexpected profit or loss. 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. 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