Quarterly Sector Update - Fidelity Investments

LEADERSHIP SERIES SECOND QUARTER 2018

Quarterly Sector Update

PRIMARY CONTRIBUTORS Fidelity Management & Research Company, Equity Division

SECTOR UPDATE

Scorecard: Technology and Discretionary on Top

U.S. tax cuts and fiscal stimulus helped firm inflation and growth expectations early in Q1, pushing the stock market higher. Then accumulating uncertainties and risks drove volatility up and prices down, with 9 of the 11 equity sectors closing Q1 in negative territory. Technology and consumer discretionary had positive quarters and remained scorecard leaders despite elevated valuations. Utilities had three negative indicators at the end of Q1.

Sector Consumer Discretionary Consumer Staples

Energy

Financials

Longer

Business Cycle

Time Horizon View

Fundamentals

Relative Valuations

+

?

+ ?

Shorter Relative Strength

+

+

Weight in S&P 500?

Index

12.7%

7.7%

5.7%

14.7%

Performance as of 3/31/18

Latest Quarter

Year to Date

Dividend Yield

3.1%

3.1%

1.3%

-7.1% -5.9% -1.0%

-7.1% -5.9% -1.0%

2.8% 2.9% 1.6%

Health Care Industrials Information Technology Materials Real Estate Telecom Utilities

13.7%

-1.2%

-1.2%

1.6%

+

?

10.2%

-1.6%

-1.6%

1.9%

+

+

?

+

24.9%

3.5%

3.5%

1.2%

?

+

2.8%

-5.5%

-5.5%

2.0%

?

+

?

2.9%

-5.0%

-5.0%

3.4%

+

?

1.9%

-7.5%

-7.5%

5.5%

?

?

?

2.9%

-3.3%

-3.3%

3.6%

S&P 500? Returns

-0.8%

-0.8%

1.8%

Past performance is no guarantee of future results. Sectors as defined by the Global Industry Classification Standard (GICS?); see additional information in the appendix. Factors are based on historical analysis and are not a qualitative assessment by any individual investment professional. Green portions suggest outperformance; red portions suggest underperformance; unshaded portions indicate no clear pattern vs. the broader market as represented by the S&P 500. Quarterly and year-to-date returns reflect performance of S&P 500 Sector Indexes. It is not possible to invest directly in an index. All indexes are unmanaged. Percentages may not sum to 100% due to rounding. Source: FactSet, Fidelity Investments, as of March 31, 2018.

2

SECTOR UPDATE

Fundamentals: Tech, Discretionary, Materials Looked Strong

The fundamentals of year-to-date return leaders technology and consumer discretionary continued to impress during Q1, but materials showed the most strength, boosted by solid EPS and EBITDA growth and free-cash-flow margin. On the other hand, real estate and financials fundamentals weakened relative to the other sectors.

Energy Telecom Materials

Utilities Cons. Disc.

S&P 500 Cons. Stpls.

Industrials Real Estate

Financials Technology Health Care

Energy Technology

Materials S&P 500 Cons. Disc.

Utilities Industrials Cons. Stpls. Health Care

Telecom

EPS Growth (Last 12 Months)

40% 30% 20% 10%

0% -10% -20% -30%

Return on Equity (Last 12 Months)

30%

20%

10%

0%

-10%

EBITDA Growth (Last 12 Months)

50% 40% 30% 20% 10%

0% -10%

Free-Cash-Flow Margin (Last 12 Months)

30% 20% 10%

0% -10%

Cons. Stpls. Cons. Disc.

Industrials Technology Health Care

Materials Telecom S&P 500

Utilities Financials Real Estate

Energy Technology Health Care

S&P 500 Materials Telecom Cons. Disc. Industrials Cons. Stpls.

Energy Utilities

Fundamentals: Strong and improving fundamentals historically have been an intermediate-term indicator of sector performance. Fundamental analysis gives

a view of how each sector is doing in terms of growth and profitability.

Past performance is no guarantee of future results. EPS = earnings per share. EBITDA = earnings before interest, taxes, depreciation, and amortization. The Financials and Real Estate sectors are not represented in the EBITDA Growth or Free-Cash-Flow Margin charts. Note that the Energy and Telecom sectors' EPS growth (last 12 months) were 3,244.7% and 119.1%, respectively. See the Glossary and Methodology slide for 3 further explanation. Source: FactSet, Fidelity Investments, as of March 31, 2018.

SECTOR UPDATE

Relative Valuations: Telecom and Real Estate Look Attractive

Based on our framework, the telecom and real estate sectors are currently trading at the lowest relative valuations, based largely on their compelling earnings and dividend yields. The valuations of the technology, industrials, and consumer discretionary sectors are somewhat elevated relative to their historical averages due to strong recent performance.

Earnings Yield

10-Year Range (excl. top & bottom 5%) Current Historical Average

Relative Forward Earnings Yield to S&P 500 Index

200% 180% 160% 140% 120% 100%

80% 60% 40% 20%

0%

Free-Cash-Flow Yield

10-Year Range (excl. top & bottom 5%) Current Historical Average

Relative Free-Cash-Flow Yield to S&P 500 Index 300% 250% 200% 150% 100%

50% 0%

-50% -100%

Cons. Disc. Cons. Stpls.

Energy Financials Health Care Industrials Technology Materials Real Estate

Telecom Utilities

Cons. Disc. Cons. Stpls.

Energy Health Care

Industrials Technology

Materials Telecom

Utilities

Relative Valuations: On their own, valuations are not necessarily the best indicator of sector performance, but when combined with other factors, valuations can be a useful tool in determining the risk-and-reward profile.

Past performance is no guarantee of future results. Forward earnings yield reflects analysts' published earnings-per-share estimates for the next 12 months, divided by market price per share; it is the inverse of the price-to-earnings (P/E) ratio. Free-cash-flow yield reflects free cash flow divided by market price per share; it is the inverse of the price-to-free-cash-flow ratio. The Financials and Real Estate sectors are not represented in the Free-Cash-Flow Yield chart. Please see the Glossary and Methodology slide for further explanation. Source: FactSet, Fidelity Investments, 4 as of March 31, 2018.

SECTOR UPDATE

Relative Strength: Technology, Discretionary, Financials Led

The technology, consumer discretionary, and financials sectors continued their steady leadership in Q1, while consumer discretionary joined the top three sectors after inflecting higher and resuming its long-term uptrend. Defensive sectors--utilities, real estate, and telecom, in particular--continued to lag the market, with no sign of a change in trend.

Sectors Exhibiting Relative Strength

Technology

Cons Disc.

Financials

Price Relative to S&P 500 Index 130

120

110

100

90

80

70

60 Mar-16

Sep-16

Mar-17

6-month review

Sep-17

Mar-18

Sectors Exhibiting Relative Weakness

Utilities

Real Estate

Telecom

Price Relative to S&P 500 Index

130

6-month

120

review

110

100

90

80

70

60 Mar-16

Sep-16

Mar-17

Sep-17

Mar-18

Relative Strength: This indicator compares the performance of each sector with the performance of the broad market, based on changes in the ratio of the securities' respective prices over time.

Past performance is no guarantee of future results. Charts represent performance of specified S&P 500 Sector Indexes relative to the broader S&P 500, indexed to 100. It is not possible to invest directly in an index. All indexes are unmanaged. Source: FactSet, Fidelity Investments, as of March 31, 2018. 5

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