Fidelity^® Strategic Disciplines

First Quarter Review

• Market Backdrop: The global economy stabilized, supporting positive performance in international developed stock markets.¹
• Positioning: Maintained sector exposures close to the benchmark.²
• Performance: The strategy outperformed the benchmark over the quarter driven by stock selection (pre-tax, net-of-fees).
• Outlook: De-globalization may provide compelling future investment opportunities.

• Global markets have shown optimism about the potential to avoid widespread recessions.
• Investors lowered their expectations for central bank interest rate cuts.

Economic activity and improving earnings outlooks supported strong international stock returns. Investor confidence improved because global economies have shown signs they may avoid widespread recessions. International developed markets experienced only minor periods of volatility.⁴ Japan was the top-performing region,⁵ with its stock market reaching all-time highs.⁶ Corporate governance changes in Japan have led to renewed focus on profit growth. Meanwhile, Hong Kong’s poor performance was likely due to sluggish economic growth in China.⁷

Inflation has substantially declined since 2022. However, it has remained more stubborn than markets had anticipated at the end of last year. Inflation ticked up a little bit in Japan and declined recently in Europe. Overall, elevated inflation has caused investors to lower their expectations for central bank interest rate cuts.

• Invested in individual stocks based on company fundamentals, valuations, sentiment, and outlook.
• Diversified regional exposure to target attractive individual stock opportunities.

Stock selection drove the strategy’s outperformance of its benchmark over the quarter. These investments included a wide array of factors including growth,⁹ quality,¹⁰ value,¹¹ and momentum¹² stocks. These investments may be able to withstand late-cycle periods of volatility and economic downturns. Part of the strategy’s approach entails investing in individual stocks based on company fundamentals, valuations, and economic outlooks. For example, our overall allocation to the healthcare sector was lower than the benchmark’s.¹³ However, our managers have invested in individual pharmaceutical companies which they believe may help generate positive returns due to recent enthusiasm for weight-loss drugs. One of our managers specifically looks for companies they believe can generate growth through competitive advantages. Overall, the investment strategy takes a long-term view toward investing in companies that we believe may outperform the benchmark¹⁴ over a full market cycle.

We have maintained small exposures over the benchmark¹⁵ to the following sectors:

• Technology, which reflects our preference for growth stocks.
• Industrials, which may rise due to future physical infrastructure investment in Europe.
• Financials, which may benefit from increased lending trends.
• Energy, which could see a boost from European oil and gas infrastructure upgrades.
• Materials, which could benefit from countries repatriating manufacturing activities.

We have sought opportunities that differ somewhat from the benchmark’s regional weightings.¹⁶ These include out-of-benchmark exposure to North America and emerging markets. We believe these exposures offer opportunities for stocks in the financial, technology, and energy sectors.

• The strategy benefited from key investments in Europe and Japan.
• Individual industrial and health care stocks contribution to positive outperformance.

The strategy performed well for the quarter (pre-tax, net-of-fees) and outperformed its benchmark.¹⁸ Individual stock selection drove the majority of the strategy’s outperformance. At a regional level, European and Japanese stocks had the biggest positive impact on the strategy. Meanwhile, strong performance from individual industrial and healthcare stocks, specifically pharmaceuticals, had a large positive impact on the strategy’s outperformance.

• Seeks capital appreciation through active management
• Seeks to provide greater returns than the MSCI EAFE Index (Net MA Tax) over a full market cycle
• Diversifies exposure across different regions, including Europe, Australia, and Asia
• Allocates opportunistically across investment styles including growth, value, and core stocks
• Adjusts as needed to help manage volatility throughout the market cycle

• International developed economies may experience prolonged late-cycle expansions.
• Inflation may continue to present challenges.

We remain optimistic for the long-term growth prospects of international developed stocks. One of the most compelling themes we see is de-globalization. De-globalization involves shifting supply chains and relocating manufacturing to regions other than China. We believe there are strong long-term opportunities across various regions. These opportunities are driven by the potential for increased efficiencies, growth, and profitability. Some areas that appear to offer such opportunities include:

• Semiconductors
• Building materials
• Factory automation
• HVAC equipment
• Plumbing supply
• Equipment suppliers
• Industrial gases
• Transportation companies

We believe most developed economies remain in the late phase of the business cycle. Recent signals indicate improving manufacturing activity and corporate profit expectations around the world. These measures may signal a prolonged extension of late-cycle expansion.

We are monitoring a few key issues that could influence our outlook.

• Inflation has been persistent and economic activity has seen an uptick. As a result, expectations for central bank interest rate cuts have fallen since the end of last year. Higher interest rates may continue to create a challenging environment for stock and bond performance.
• China’s economy is another important issue. China’s consumption of exports from many developed market economies may have a broad impact across regions. China has taken measures to stimulate economic activity but has experienced limited success.
• The war in Europe and continued conflict in the Middle East remain areas of concern. However, these conflicts have not had a major impact on most developed economies.