Fidelity Mid Cap Value Fund Key Takeaways For the semiannual reporting period ending July 31, 2017, the fund's Retail Class shares gained 4.24%, trailing the 4.81% return of the benchmark Russell Midcap Value Index. Security selection in the energy sector and, within financials, the diversified financials segment detracted most versus the benchmark the past six months, whereas stock picks in the real estate sector were notably additive. On June 6, 2017, Kevin Walenta became Portfolio Manager of the fund, succeeding Court Dignan. Both managers kept sector weightings largely aligned with those in the benchmark, and focused on quality and value in selecting securities. Kevin's stock-specific changes meant that by period end the fund had an even lower price-earnings (P/E) ratio (was even cheaper) and a higher return on equity (was higher quality) than at the outset of the reporting period. Kevin is optimistic that his focus on strong franchises that are out of favor with investors for transitory reasons can drive favorable long-term relative performance. MARKET RECAP The U.S. equity bellwether S&P 500 index returned 9.51% for the six months ending July 31, 2017, gaining strongly to begin the period on optimism for President Trump's pro-business agenda. Equity markets leveled off, however, as the fledgling administration faced the first test of its domestic agenda. Stocks reacted with uncertainty to efforts by Congress in March to repeal and replace the Affordable Care Act, and then reverted upward through July 31. In a stark reversal from 2016, growth-oriented stocks handily topped their value counterparts for the period. Among sectors, information technology (+17%) fared best, surging as a handful of major index constituents posted stellar returns. Health care (+14%) also shined, climbing in February and again in the final four months of the period, following the ACA's reprieve. Meanwhile, financials (+8%) lagged because sentiment regarding the potential for reduced regulation and lower taxes faded as the White House turned its attention to other initiatives. Rising interest rates held back real estate (+8%). Materials (+6%) trailed the broader market as optimism regarding increased infrastructure spending appeared to fade. Investors' general preference for risk assets hurt dividend-rich telecommunication services (-3%), as did increased competition. Lastly, lower oil prices sent energy (-7%) to the bottom of the sector performance rankings. Not FDIC Insured May Lose Value No Bank Guarantee
Q&A Fund Facts Trading Symbol: Kevin Walenta Portfolio Manager FSMVX Start Date: November 15, 2001 Size (in millions): $3,196.66 Investment Approach Fidelity Mid Cap Value Fund seeks long-term growth of capital in a valuation-conscious manner with a bias toward higher-quality companies. We believe that bottom-up fundamental research has the potential to deliver long-term outperformance. Core to our investment philosophy is the belief that buying strong franchises trading at a discount to the intrinsic (fair) value of their business can add value, so long as the margin of safety is sufficient to compensate for idiosyncratic risks. We use quantitative models to narrow down the investment universe to a more manageable size, maintain style consistency and manage risk in the portfolio. Combining Fidelity's fundamental research strengths with proprietary investment models and tools provides a sound basis for identifying attractive opportunities in the mid-cap value space. The fund is run in a fully invested, near-sector-neutral manner, so potential investments are scrutinized against similar stocks in the same sector. An interview with Portfolio Manager Kevin Walenta, who succeeded Court Dignan on June 6, 2017 Q: Kevin, how did the fund perform for the six months ending July 31, 2017 The fund's Retail Class shares gained 4.24%, lagging the 4.81% return of the benchmark Russell Midcap Value Index but beating the 4.03% advance of the peer group average. Looking back a full year, the fund gained 13.06%, compared with 12.69% for the Russell benchmark and 14.05% for the peer group average. While my tenure on the fund has been brief, I'm optimistic that my sector-neutral approach and bottom-up focus on quality and value can help drive long-term outperformance. Q: Let's start with the investing environment and its influence on fund performance the past six months. This wasn't an optimal backdrop for the similar investment strategies my predecessor Court and I follow. After strong performance in 2016, value stocks fell from favor with investors. Early in 2017, post-election excitement around prospects for economic growth was put on hold, as the new presidential administration faced challenges enacting its agenda. Investors began looking for earnings growth in less economically sensitive, more-traditional growth sectors, including information technology and health care. At the same time, declining oil prices pressured energy, which turned in the worst result among the 11 sectors within the fund's benchmark. I believe security selection is the only way to offset these types of factor headwinds. While I made some stockspecific changes since taking over in early June, the fund generally remained focused on quality and value, as I tried to build a portfolio of companies with what I believe are strong franchises and attractive valuations. Unfortunately, fund performance fell short of the benchmark the past six months due to picks in a number of categories, especially energy and the diversified financials industry. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
Q: How was the fund positioned within energy The fund had exposure to a number of exploration and production (E&P) stocks that posted sharp declines as oil prices slid and excitement for potential pro-growth policies under the Trump administration began to subside. The biggest disappointment was a non-benchmark stake in E&P firm Anadarko Petroleum, which returned about -37% for the fund this period. The stock was hit not only by declining oil prices, but also by two deadly accidents that occurred this past spring and led to the temporary shutdown of a number of the company's wells. Given the resulting safety concerns and continued low energy prices, I decided to eliminate Anadarko from the portfolio in July. I favored other energy companies with lower correlation to energy prices and what I considered superior idiosyncratic opportunities that could help add value over the long term. Q: Which other sectors and stocks hurt Picks in financials, information technology, consumer discretionary, health care and consumer staples nicked relative performance. Some of the biggest individual detractors this period were financials, the largest sector allocation in the fund and benchmark. This group was hindered by a decline in long-term interest rates and reduced expectations for near-term regulatory changes. Notable individual detractors included property & casualty insurer AmTrust Financial Services. The stock plunged following the repeated release of bad news, including a reserve shortfall, material errors in prior years' financial statements, faulty accounting practices and disappointing earnings. Given these developments, I decided the stock did not fit my quality criteria and sold it before period end. Other detractors included credit card issuers Discover Financial Services and Synchrony Financial, both sizable overweightings. The fund's investments in each declined because rising credit card delinquencies and defaults led to increased loan-loss provisions that hindered the companies' earnings outlooks. Synchrony, which issues store-branded credit cards, faced an added headwind from weak foot traffic for brick-and-mortar retailers. I boosted our stake in Discover making it the fund's largest holding as of July 31 because I think it has a strong brand and an attractive return on equity (ROE), given its relatively low valuation. I held steady our investment in Synchrony, our second-largest position at period end. The firm doesn't have the same brand recognition as Discover, but its leadership does a very good job managing credit risks. Plus, I thought its stock price already reflected concern related to continued deterioration in consumer credit trends and traditional retail sales. Q: What factors helped Security selection was notably strong in the real estate sector, largely because of a sizable non-benchmark stake in cell-tower operator American Tower. The fund's shares rose 33% this period, buoyed by the firm's valuable real estate assets, along with increased consumer demand for data both of which allowed the company to increase prices. In addition, management has been expanding the company's footprint in international markets, which have seen growing demand for more data as coverage spreads and more consumers get smartphones. Other top contributors included FNF Group, a market leader in mortgage-title insurance. Its stock rose 40% the past six months, benefiting from favorable sentiment around the housing cycle and the imminent spin-off of Black Knight Financial Services, which provides technology and data analytics services to mortgage lenders. I reduced our investment in FNF but it remained a sizable holding because I thought its valuation still looked attractive, especially given the company's leadership position and the U.S. housing market's continued recovery. In tech, the fund's shares of semiconductor equipment Lam Research gained 44%, rising as the semiconductor industry rebounded from a late-2016 correction. The expansion of artificial intelligence, autonomous driving and data centers has spurred demand for semiconductor chips, while supply has tightened, in turn bolstering the need for more equipment. I sold the fund's stake in Lam soon after I took over because I didn't think the valuation reflected concerns about potential overheating in the industry. Q: What's your outlook, Kevin, and how is the fund positioned as of July 31 I'm optimistic that my bottom-up focus on strong franchises that are out of favor with investors for transitory reasons can help drive long-term outperformance. I plan to continue managing the fund on a sector-neutral basis, as I describe in more detail later on. Accordingly, after the annual rebalancing of the Russell benchmark, which occurred in June, I reduced the fund's stakes in tech, materials and energy, and increased our allocations to consumer discretionary and real estate. The fund ended the period even "cheaper" than it was at the end of January, with a lower P/E ratio and higher freecash-flow yield. Also, some of the fund's quality metrics improved, including ROE and free-cash-flow margin. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
LARGEST CONTRIBUTORS VS. BENCHMARK Kevin Walenta on his investment philosophy: "I favor companies that have strong franchises, businesses I can understand, solid balance sheets and the potential for high returns on equity over a long period. I try to buy stocks with these characteristics when the share price seems attractive and investors' expectations are low for transitory reasons. I make every effort to avoid value traps whereby the business model is under structural rather than transitory duress. In looking for investment ideas, I tend to favor stocks within the benchmark Russell Midcap Value Index. "My investment philosophy is rooted in the concept of 'margin of safety.' I'm always looking for a margin of safety, or cushion, in terms of the quality of the company's business model, the balance sheet supporting its operations and the price of the underlying security. "I'm very mindful of investment risk or the risk of a permanent loss of capital or purchasing power which can occur either by overpaying for an asset (which I call price risk) or by giving capital to subpar enterprises (which I call business-model risk). To manage risk, I pay close attention to the price I'm paying relative to the company's underlying or intrinsic value, and I avoid businesses that seem vulnerable to a permanent loss of earnings power. I believe that owning strong franchises at better prices can reduce the probability of a permanent loss of capital. "As a fellow shareholder, I want the fund to outperform its benchmark. In my view, the optimal way to achieve this is by managing the fund so that it takes on the most attractive qualities of the benchmark, including low turnover and, therefore, low transaction costs. I also aim to put aside emotion, which helps me avoid index components that are expensive and/or weak in quality." Holding Market Segment Average Relative Relative Contribution (basis points)* American Tower Corp. Real Estate 3.03% 78 FNF Group Financials 2.17% 64 Lam Research Corp. Information Technology 0.89% 32 Devon Energy Corp. Energy -0.29% 31 Wyndham Worldwide Corp. * 1 basis point = 0.01%. Consumer Discretionary LARGEST DETRACTORS VS. BENCHMARK Holding AmTrust Financial Services, Inc. Market Segment 1.20% 31 Average Relative Relative Contribution (basis points)* Financials 0.67% -68 Anadarko Petroleum Corp. Energy 1.06% -61 Discover Financial Services Financials 2.35% -41 Synchrony Financial Financials 1.86% -37 Newfield Exploration Co. Energy 0.66% -33 * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Portfolio Portfolio Six Months Ago Domestic Equities 95.36% 89.21% International Equities 1.65% 7.33% Developed Markets 0.53% 5.81% Emerging Markets 1.12% 1.52% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.50% Cash & Net Other Assets 2.99% 2.96% Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number. "Tax-Advantaged Domiciles" represent countries whose tax policies may be favorable for company incorporation. 4 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
MARKET-SEGMENT DIVERSIFICATION 10 LARGEST HOLDINGS Market Segment Portfolio Portfolio Six Months Ago Financials 20.30% 19.23% Real Estate 15.12% 12.64% Consumer Discretionary 11.64% 7.91% Industrials 11.52% 11.24% Utilities 10.74% 10.48% Energy 6.94% 10.05% Health Care 6.20% 5.03% Materials 4.93% 7.12% Information Technology 4.65% 9.12% Consumer Staples 4.40% 3.32% Telecommunication Services 0.57% 0.90% Other 0.00% 0.00% Holding Market Segment Portfolio Portfolio Six Months Ago Discover Financial Services Financials 2.82% 2.83% Synchrony Financial Financials 2.72% 2.59% Xcel Energy, Inc. Utilities 2.60% 1.11% Realogy Holdings Corp. Real Estate 2.39% -- CBRE Group, Inc. Real Estate 2.30% 0.40% Williams-Sonoma, Inc. Consumer Discretionary 2.29% -- American Tower Corp. Real Estate 2.28% 2.76% CenterPoint Energy, Inc. Utilities 2.21% 0.42% FNF Group Financials 1.97% 2.62% Allison Transmission Holdings, Inc. Industrials 1.91% 1.77% 10 Largest Holdings as a % of Net Assets 23.50% 22.49% Total Number of Holdings 84 139 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 July 31, 2017 6 Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Mid Cap Value Fund Gross Expense Ratio: 0.73% 2 4.24% 6.17% 13.06% 7.59% 15.04% 7.68% Russell Midcap Value Index 4.81% 6.57% 12.69% 9.00% 15.32% 7.99% Morningstar Fund Mid-Cap Value 4.03% 5.76% 14.05% 7.27% 13.56% 6.88% % Rank in Morningstar Category (1% = Best) -- -- 61% 49% 21% 29% # of Funds in Morningstar Category -- -- 402 356 311 219 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/15/2001. 2 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, advisor.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 Information section of this Q&A.
Definitions and Important Information 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. Value stocks can perform differently from other types of stocks and can continue to be undervalued by the market for long periods of time. Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. 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. Effective 6/6/17, Kevin Walenta became the sole portfolio manager of the fund. 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. 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. Russell Midcap Value Index is a market-capitalization-weighted index designed to measure the performance of the mid-cap value segment of the U.S. equity market. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. 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 6
Manager Facts Kevin Walenta is a portfolio manager at Fidelity Management & Research Company (FMR Co.), the investment advisor for Fidelity's family of mutual funds. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, Mr. Walenta manages Fidelity Select Environment and Alternative Energy Portfolio. Additionally, he manages Fidelity and Fidelity Advisor Mid Cap Value Fund, and Fidelity Mid Cap Value K6 Fund. Prior to assuming his current responsibilities, Mr. Walenta was an equity research analyst covering the utilities, industrial, and energy sectors. In this capacity, he was responsible for analyzing, valuing, and recommending equity securities. Before joining Fidelity in 2008, Mr. Walenta was an equity research associate at Driehaus Capital Management. He has been in the investments industry since 2004. Mr. Walenta earned his bachelor of business administration degree from the University of Wisconsin-Madison and his master of business administration degree from Duke University. He is also a CFA charterholder. 7 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
PERFORMANCE SUMMARY: Quarter ending December 31, 2017 1 3 Annualized 5 10 / LOF 1 Fidelity Mid Cap Value Fund Gross Expense Ratio: 0.73% 2 17.00% 7.87% 15.26% 8.89% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/15/2001. 2 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. 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 02917. Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917. 2018 FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. 714605.7.0 Diversification does not ensure a profit or guarantee against a loss.