Fidelity Real Estate Investment Portfolio

8/2/2019 Fidelity Real Estate Investment Portfolio

1/5

Nor 2011

REIT overvie

U.S. Coress create Rea Estate Ivestmet Trusts (REITs) i 1960 as a way to make ivestmet i

are-scae, icome-prouci rea estate accessibe to a ivestors. Te birt o REITs provie te e-

era pubic wit access to a ew set o ivestmet opportuities, wic previousy a oy bee avaiabe

to istitutioa ivestors a weaty iiviuas trou irect rea estate ivestmet. I its eary years,

te iustry was omiate by mortae REITs, wic provie ebt aci or commercia or resie-

tia properties trou teir ivestmet i mortaes a mortae-backe securities. Equity REITs tat

ow a maae commercia properties were imite ue to aws tat require separatio o asset ower-

sip a maaemet. Passae o te Tax Reorm Act o 1986 permitte REITs to bot ow a maae

properties a set te stae or a wave o equity IPOs i te mi-1990s, wic cause te umber o

REITs to skyrocket rom 119 i 1990 to 219 i 1995 (Exibit 1). Toay, te majority o pubicy trae U.S.

REITs are equity REITs tat ow a typicay maae commercia rea estate properties. REITs operate

across a iverse roup o sectors a are ot irecty expose to sie-amiy resietia ousi (Exibit

2). To quaiy as a REIT i te U.S., compaies must ivest at east 75% o tota assets i rea estate,

erive at east 75% o ross icome as ret rom rea property or iterest rom mortaes o rea property,

a istribute auay at east 90% o taxabe icome to sareoers i te orm o ivies.

exhibit 1

Source: National Association o Real Estate InvestmentTrusts (NAREIT), as o 9/30/11.

An Rn, CFAManager, Investment Capability

Management

kEy TakEaways

On Nor 17, 2011F Ra esa in

n Poroo cra

25 ar annrsar.

t n s on o n

rs os an args

ns ca o ra

scrs nsn.

S br on F

n 1992 an as n

agng n snc 19

S s on ns

on poroo anagr,

ng an or or s or

sppr, barr Grnf

FUnd SPOTlIghT

Fieity Rea Estate

Ivestmet Portoio

exhibit 2

GROwth OF u.S. Reit uNiveRSe

SiNCe FuNd iNCePtiON

A diveRSe GROuP OF u.S. Reit

SeCtORS

Source: NAREIT, as o 9/30/11.

0

100

200

300

400

500

0

50

100

150

200

250

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

EquityMarketCapitalizationinBillions$

#ofREITs

# of REITsEquity Market Capitalization

Retail

23.5%

Industrial/Office

16.9%

Residential

15.9%

Health Care11.3%

Diversified

7.2%

Lodging/Resorts

4.3%

Self Storage

5.8%

Timber

5.1%

Mortgage

10.0%


2/5

2

Diverifction beneft o llocting to REIT

historicay, U.S. REIT equities ave emostrate reativey ow

eves o sesitivity to te broaer stock a bo markets. Te

averae correatio1 betwee te FTSE nAREIT Equity REITs

Iex (a proxy or U.S. REIT equities) a te S&P 500 (a proxyor U.S. stocks) over te past 25 years is 0.50. Reative to te

Barcays Capita U.S. Areate Bo Iex (a proxy or U.S.

bos), te averae correatio wit REITs over te same perio

is just 0.18 (Exibit 3).

Atou iversicatio oes ot esure a prot or uaratee

aaist oss, combii assets tat exibit a ow correatio to oe

aoter as te potetia to reuce portoio risk witout sacric-

i retur potetia. To emostrate tis poit, we costructe ve

ypotetica portoios wit varyi aocatios to U.S. stocks, U.S.

bos a REITs a utiize a mea-variace optimizatio aay-

sis (MVO)2 i orer to evauate potetia iversicatio beets o

ateri asset cass weitis. Te overa objective is to maximize

risk-ajuste retur, wit te staar Sarpe Ratio3 provii

a barometer o risk-ajuste perormace. O te ve ypoteti-

ca portoios, te two witout ay exposure to REITs, Portoios

#5 a #1, a te owest Sarpe Ratios over te 25-year time

perio iicati reativey weak risk-ajuste retur. Te aitio

o REITs resute i improve Sarpe Ratios, as see by Portoios

#2, #3 a #4 (Exibit 4). Taki te aaysis oe step urter,

Portoio #3 eerate a ier retur wit ess voatiity (as mea-

sure by staar eviatio4) ta Portoio #2. Tus, Port oio

#2 is eeme ieciet, rom a mea-variace stapoit, a

is remove rom cosieratio. We are et wit Portoio #3 a

#4, wic ave 20% a 33.3% aocatios to REITs, respectivey.

Atou Portoio #3 as te ier Sarpe Ratio o te two, Port-

oio #4 is ot ieciet sice ivestors wit reater risk appetites

exhibit 3

Source: Fidelity Asset Management, as o 9/30/11. FTSE NAREIT EquityREITs Index is used to represent REITs. S&P 500 is used to representstocks. Barclays U.S. Aggregate Bond Index is used to represent bonds.Past perormance is no guarantee o uture results.

ReitS vS. StOCkS & bONdS: A hiStORy OF diveRSiFiCAtiON

Source: Morningstar EnCorr, as o 10/31/11. Past perormance is no guarantee o uture results. FTSE NAREIT Equity REITs Index is used to representREITs. S&P 500 is used to represent U.S. Equities. Barclays U.S. Aggregate Bond Index is used to represent U.S. Bonds.The asset class (index) returns reect the reinvestment o dividends and other earnings. This chart is or illustrative purposes only and does not representactual or uture perormance o any investment option. It is not possible to invest directly in a market index.

hiStORiCAl RiSk/RetuRN SPeCtRum

11/1/198610/31/2011

exhibit 4: hyPOthetiCAl PORtFOliOS

Portolio Allocation Sharpe Ratio

160% S&P 500

0.5040% BarCap U.S. Areate Bo

2

55% S&P 500


10% FTSE nAREIT Equity REITs

3

40% S&P 500


20% FTSE nAREIT Equity REITs

4

33.3% S&P 500

0.5233.3% BarCap U.S. Areate Bo

33.3% FTSE nAREIT Equity REITs

580% S&P 500


REITs

U.S. Equities

U.S. Bonds

#1

#3

#4

#5#2

7

7.5

8

8.5

9

9.5

10

0 5 10 15 20 25

AverageAnnualizedReturn(%)

Standard Deviation of Return (%)

cou be wii to accept ier eves o voatiity i excae

or te perceive ier retur potetia oere by Portoio #4.

Tis ypotetica exampe makes cear te potetia iversicatio

beets o ai REITs to a traitioa portoio cosisti o U.S.

stocks a bos.

Fidelit Rel Ette Invetment Portolio: Fund overvie

Te Fieity Rea Estate Ivestmet Portoio ormay ivests

at east 80% o assets i securities o compaies pricipay

eae i te rea estate iustry a oter rea estate reate

ivestmets a seeks above-averae icome a o-term

Average: 0.18

Average: 0.50

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Correlation

REITs vs. StocksREITs vs. Bonds

2010

2008


3/5

3

capita rowt, cosistet wit reasoabe ivestmet risk. Te

u seeks to provie a yie tat excees te composite yie

o te S&P 500 Iex. Te u seeks to te appropriate

baace betwee o esive a eesive REIT equities i orer

to participate i up-markets a to ep miimize osses uriow-markets. Te portoio is iversie across 40-60 ois

a varyi busiess moes, eorapies a property types.

Property types eeray icue oce buiis, eat care

aciities, apartmets, retai a iustria properties. georapi-

cay, te portoio maaer ooks to ivest across may reios

o te coutry, bot i urba a suburba areas. Eac sector,

reio a busiess moe ca ave vasty ieret suppy/

ema yamics a varyi ecoomic exposures. Te portoio

maaer utiizes a o Fieitys oba researc resources to ep

im ai a ee i te yamic a rapiy cai commer-

Diciplined invetment proce

Comprehensive research inputsPortoio Maaer Steve Buer everaes Fieitys oba etwork o

rea estate equity aaysts, as we as oter Fieity resources, icu-

i creit aaysis, quatitative a tecica researc, to etermie

ivestmets or te u.

Combined bottom-up and top-down approach

he empoys a iscipie ivestmet process tat combies compay-

by-compay, uameta aaysis wit a broaer, macro perspective

o te sector to bui a portoio o rouy 40 to 60 ois. Steve

takes ito accout bot compay uametas a stock vaua-

tios, as tese ave tee to be te primary rivers o rea estate

stock returs over te o-term. he eeray ooks to take avatae

o opportuities were e beieves te broaer market may ave

misjue te earis power or vauatio o a compay. Steve aso

moitors tecica actors, wic ave ot typicay impact rea estatestocks over te o-term, but ote provie sort-term opportuities.

Rigorous risk analysis

A quatitative moe is use to moitor uameta, macroecoomic

a eorapic exposures, epi to optimize bottom-up a top-ow

actors, as we as epi to mitiate ay uitee risks.

Multi-layered portolio diversication

Te portoio tes to ave ivestmets across a umber o busiess

moes, eorapies a property types, ivi ivestors a iversie

exposure to commercia rea estate stocks.

cia property market. he aso utiizes resources outsie o Fieity,

wic eabes im to eectivey maae te u.

Fieitys oba rea estate securities researc team cosists o

21 ivestmet proessioas base i eit ieret coutries.

Te seer size o tis team combie wit its eorapic isper-

exhibit 6: insn procss.

Source: Fidelity Asset Management.

exhibit 5: S br zs Fs goa rsorcs.

Source: Fidelity Asset Management as o 10/31/11.

Team of 9 investment

professionals

Portfolio ManagerSteve Buller, CFA

U.S. Real Estate

Securities Research

Team of 12 investment

professionals

International RE

Securities Research

Dedicated traders in

the U.S. with other

markets utilizing local

trading desks

REIT Trading Desk

Over 380 research

professionals worldwide

U.S. and International

Equity Research

6 U.S.-based

investment

professionals

Real Estate Debt Group

Over 90 research

professionals worldwide

Fixed Income

QuantitativeResearch

TechnicalResearch

FundamentalsCompany Mgmt.

Earnings Growth

Quality Of Assets

Property Markets

Balance Sheet

ValuationPrice To NAV

FFO Multiple5

AFFO Multiple6

EBITDA Multiple7

Dividend Yield

EconomicConditions/

Outlook

RegionalConditions

ThematicPositioning

SectorAllocation

Top-Down

Perspective

Fund

TechnicalCapital Flows

Short Interest

Charts

Fund Flows

CompanyWeightings

SectorWeightings

AnalystBestIdeas

DedicatedTrading

Invetment philoophREITs are a balance o real estate and stocks

Recoizi attributes o bot is key to maximizi perormace

We consider real estate securities markets to be inecient

due to sort-term beaviora isocatios tat ca oer attractive

o-term ivestmet opportuities

Security selection is critical

Cosistet wit Fieitys bottom-up ivestmet piosopy across te

oraizatio

Maintain fexibility to adapt to changing investment environment

Particuary ecessary uri caei perios

sio aows aaysts to ocus arrowy o a respective sector a/

or eorapy someti tat we beieve ives us a competi-

tive avatae over may o our peers. Oter Fieity resourcestat provie key iputs to te us ivestmet process icue

te six perso rea estate ebt team, quatitative a tecica

researc toos, eicate rea estate securities traers a Fie-

itys reowe U.S. a iteratioa equity a xe icome

researc oraizatios (Exibit 5, above et).

Pt nd current poitioning

Foowi te acia crisis, te us positioi was car-

acterize by wat we reer to as a oese/eese stratey.

Specicay, i ate 2008 a eary 2009, we sout to expoit te

vauatio isparity tat existe across REIT sectors, busiess mo-


4/5

4

exhibit 7

Source: Fidelity Asset Management as o 10/31/11.

es a iiviua compaies. As we move ito 2010, we bea

ocusi o compaies tat we beieve a stro extera rowt

prospects tat cou rive uture ivestmet returs. As suc, te

u iveste i REITs tat we tout wou take avatae o

teir reativey iexpesive cost o capita to buy properties i a

accretive maer. More recety, we ave ou ourseves ocuse

o bottom-up stock picki rive, primariy, by uametas

a vauatio. We beieve tat i a eviromet caracterize by

eevate voatiity a oba ecoomic ast, tis stratey oers us

te best opportuity to acieve te us objectives.

2011 nd beond

U.S. commercia rea estate prices as we as uameta actors suc

as occupacy rates a et operati icome (nOI) rowt ave recov-

ere sice te acia crisis. More recety, voatiity i te capita mar-

kets a ecoomic weakess ave cause some to questio te vitaityo te commercia rea estate ema cyce. despite tis act, peraps

te most siicat potetia taiwi or REITs is te cotiue ack

o ew commercia rea estate suppy. new costructio starts as a

percetae o tota commercia property ave bee at istoricay recor

ow eves sice 2009 a we beieve tat recet acia market weak-

ess cou exacerbate te situatio by causi pas or ew suppy

aitios to be eerre urter ito te uture. Te earier aaysis

makes a stro case or REITs a or te Fieity Rea Estate Ivest-

met Portoio, wic as aviate a rapiy cai a persistety

caei ivestmet ascape over its 25-year istory. We beieve

te u is worty o cosieratio by ivestors i pursuit o commercia

rea estate exposure i teir portoios. We are excite about te us

recet miestoe a ook orwar to aoter 25 years.

exhibit 8

Source: Fidelity Asset Management, as o 10/31/11. The chart illustrates the perormance o a hypothetical $100 investment made in the und on 12/31/86.Figures include reinvestment o capital gains and dividends, but do not reect the eect o any applicable sales charges or redemption ees, which wouldlower these fgures. This chart is not intended to imply any uture perormance o the und.

Fidelity ReAl eStAte iNveStmeNt PORtFOliO

hyPOthetiCAl iNveStmeNt ON 12/31/1986 vS. mAjOR ASSet ClASSeS

Fund Positioning

Pre-2008 20082009 20102011 Today

Stockseectio

Oesive/eesivestratey

Compaies witstro exterarowt prospects

Stockseectio

$1,122

$912

$791

$560

$0

$100$200

$300$400

$500$600

$700$800

$900

$1,000$1,100

$1,200$1,300

$1,400

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

FRESXS&P 500

BofA/ML U.S. High Yield Master IIBarclays U.S. Aggregate Bond

Averae Aua Tota Retur (%) MaaerTeure

(10/1/1998)

SiceIceptio

(11/17/1986)

grossExpeseRatio8

Sort-TermTrai Fee(% / ays)

1 Yr 3 Yr 5 Yr 10 Yr

Fieity Rea Estate Ivestmet Portoio 0.96 0.20 -3.09 8.88 9.26 9.55 0.85 0.75/90

DJ U.S. Select Real Estate Securities Index 1.64 -2.30 -3.33 9.13 9.21 n/A n/A n/A

Moristar Rea Estate % Beate 63% 83% 44% 57% n/A n/A n/A n/A

# o Fus i Moristar Cateory 261 229 202 112 n/A n/A n/A n/A

exhibit 9: Sanar proranc as o 9/30/11.

Source: Fidelity Asset Management, as o 9/30/11. Total returns are historical and include change in share value and reinvestment o dividends and capitalgains, i any. Lie o Fund fgures are reported as o the inception date to the period indicated. These fgures do not include the eect o sales charges, i any. Isales charges were included, returns would have been lower. Morningstar Percent Beaten is the unds total-return percentile rank relative to all unds that havethe same Morningstar Category. % Beaten is based on total returns which include reinvested dividends and capital gains, i any, and exclude sales charges.

Understanding investment perormance: As you review this update, please remember that the perormance data stated represents past peror-

mance, which does not guarantee uture results. Investment return and principal value o an investment will fuctuate; thereore, you may have a

gain or loss when you sell your shares. Current perormance may be higher or lower than the perormance stated. To learn more or to obtain the

most recent month-end perormance, call Fidelity or visit www.Fidelity.com/perormance.


5/5

Before investing, consider the funds investment objectives,risks, charges, and expenses. Contact Fidelity for a prospectusor, if available, a summary prospectus containing this informa-tion. Read it carefully.

Past perormance is no guarantee o uture results.

Stock markets, especiay orei markets, are voatie a ca eciesiicaty i respose to averse issuer, poitica, reuatory, market, orecoomic eveopmets. Forei securities are subject to iterest rate,currecy excae rate, ecoomic, a poitica risks.

Rea Estate is a cycica iustry tat is sesitive to iterest rates,ecoomic coitios (bot atioay a ocay), property tax rates,a oter actors. Te u may ave aitioa voatiity because it caivest a siicat portio o assets i securities o a sma umber oiiviua issuers.

I eera te bo market is voatie, a xe icome securities carryiterest rate risk. (As iterest rates rise, bo prices usuay a, a vice

versa. Tis eect is usuay more proouce or oer-term securities.)Fixe icome securities aso carry ifatio risk a creit a eautrisks or bot issuers a couterparties. Uike iiviua bos, mostbo us o ot ave a maturity ate, so avoii osses cause byprice voatiity by oi tem uti maturity is ot possibe. lower-quaity ebt securities ivove reater risk o eaut or price caes ueto potetia caes i te creit quaity o te issuer.

Views expresse are as o november 14, 2011 a may cae baseo market a oter coitios. Uess oterwise ote, te opiiosprovie are tose o te autor a ot ecessariy tose o FieityIvestmets. Tese materias are provie or iormatioa purposesoy a sou ot be use or costrue as a recommeatio o aysecurity, sector, or ivestmet stratey. Pease cosut your tax or a-cia avisor or aitioa iormatio coceri your specic situatio.

1 Correatio coeciet is a measure o te iterepeecies o two

raom variabes tat rae i vaue rom 1 to +1, iicati perecteative correatio at 1, absece o correatio at zero, a perectpositive correatio at +1.

2 Mea-variace optimizatio matematicay accouts or expecteretur (mea) a risk (variace) i a attempt to optima por toiosao te so-cae eciet rotier wit te maximum retur or temiimum risk.

3 Te Sarpe ratio compares port oio returs above te risk-ree ratereative to overa portoio voatiity. A ier Sarpe ratio impies betterrisk-ajuste returs.

4 Staar eviatio sows ow muc variatio tere is rom te aver-ae (mea or expecte vaue). A ow staar eviatio iicatestat te ata poits te to be very cose to te mea, wereas a istaar eviatio iicates tat te ata poits are sprea out over aare rae o vaues.

5 FFO: Fus rom Operatios.

6 AFFO: Ajuste Fus rom Operatios.

7

EBITdA: Earis Beore Iterest, Taxes, depreciatio a Amortizatio.8 gross Expese Ratio is te tota aua u operati expese ratio romte us most recet prospectus.

2011 Moristar, Ic. A rits reserve. Te Moristar ior-matio cotaie erei: (1) is proprietary to Moristar a/or itscotet proviers; (2) may ot be copie or reistribute; a (3) is otwarrate to be accurate, compete or timey. neiter Moristar or it scotet proviers are resposibe or ay amaes or osses arisi romay use o tis iormatio. Fieity oes ot review te Moristar ataa, or mutua u perormace, you sou ceck te us curretprospectus or te most up-to-ate iormatio coceri appicabeoas, ees a expeses.

Iices are umaae a you caot ivest irecty i a iex.

Staar & Poors 500 Iex is a umaae iex o are-cap stockscommoy use as a measure o U.S. stock market perormace.

Te BoA Merri lyc BB US hi Yie Costraie Iex is a moi-e market capitaizatioweite iex o US oar eomiatebeow ivestmet rae corporate ebt pubicy issue i te US o-mestic market. Quaiyi securities must ave a averae rati (baseo Mooys, S&P a Fitc) betwee BB1 a BB3, icusive, a aivestmet rae rate coutry o risk. I aitio, quaiyi securitiesmust ave at east oe year remaii to a maturity, a xe couposceue a at east $100 miio i outstai ace vaue. deautesecurities are excue. Te iex cotais a securities o Te BoAMerri lyc BB US hi Yie Iex but caps issuer exposure at 2%.

Te Barcays Capita U.S. Areate Bo Iex is a umaae iexo omestic ivestmet-rae bos, icui corporate, overmeta mortae-backe securities.

dow Joes U.S. Seect Rea Estate Securities Iex is a foat-ajustemarket capitaizatioweite iex o pubicy trae rea estatesecurities suc as rea estate ivestmet trusts (REITs) a rea estateoperati compaies (REOCs).

FTSE nAREIT Equity REITs Iex is a market capitaizatioweiteiex tat is esie to measure te perormace o taxquaie ReaEstate Ivestmet Trusts (REITs) tat are iste o te new York StockExcae, te America Stock Excae, or te nASdAQ natioaMarket list wit more ta ty percet o tota assets i quaiyi reaestate assets secure by rea property. Mortae a Timber REITs areexcue.

Fieity Brokerae Services llC, Member nYSE, SIPC, 900 Saem StreetSmite, RI 02917

Fieity Ivestmets Istitutioa Services Compay, Ic., 100 SaemStreet, Smite, RI 02917

600090.2.0

2011 FMR llC. A rits reserve.

Documents

Fidelity Real Estate Investment Portfolio