Fidelity Japan Smaller Companies Fund
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PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
Fidelity® Japan Smaller
Companies Fund
Key Takeaways MARKET RECAP
• For the semiannual reporting period ending April 30, 2021, the fund The MSCI ACWI (All Country World
returned 6.33%, lagging the 13.92% result of the benchmark Index) ex USA Index gained 27.51% for
Russell/Nomura Mid-Small CapSM Index. the six months ending April 30, 2021,
with international equities rising amid
improved global economic growth,
• The Russell/Nomura index rallied the past six months, helped by its widespread COVID-19 vaccinations, fiscal
bias toward larger-cap stocks − which beat micro and small caps − stimulus in the U.S. and abroad, and
industrials, and more economically sensitive (or cyclical) value stocks. fresh government spending programs. In
addition, foreign securities were
• Within the benchmark, the energy, materials, information technology bolstered in part by general U.S.-dollar
and industrials sectors posted notable gains. Conversely, the more- weakness. The period began with a shift
defensive consumer staples, health care and utilities sectors lagged. in momentum. In November,
international stocks shrugged off a two-
• Portfolio Manager David Jenkins believes his focus on high-quality month retreat by gaining roughly 13%.
stocks hurt performance relative to the benchmark because low- The momentum continued in December,
quality stocks outperformed this period. The fund's smaller-cap bias as positive news on the effectiveness of
also detracted because larger caps generally turned in better returns. vaccines provided a notable boost to
international equities. In late December,
as vaccines were approved by
• By sector, stock picks in industrials, information technology, materials
government regulatory authorities,
and communication services hindered relative performance most.
investors gained more confidence in the
outlook for the global economy. As the
• Among individual detractors were: internet company Z Holdings new year began, many economists raised
(formerly Yahoo Japan); Arcland Sakamoto, a leading home their expectations for a powerful
improvement retailer; and Elecom, a technology hardware company. economic recovery in the U.S. and
Each was pressured by the shift to more economically sensitive stocks. elsewhere, as opposed to the sluggish
rebound they had been anticipating. By
• Conversely, positioning in financials, stock picks in real estate and region, the U.K. (+37%) and Canada
underexposure to consumer staples helped relative performance. (+35%) led the way. Europe ex U.K.
(+33%) and Asia Pacific ex Japan (+31%)
• Top contributors included Central Automotive Products, which saw also outperformed. Conversely, Japan
strong demand for its autobody coatings, and a non-benchmark stake (+17%) and emerging markets (+23%)
lagged. Looking at sectors, energy
in gym franchiser Fast Fitness Japan, a new addition to the portfolio.
(+45%) and financials (+40%) fared best,
followed by information technology and
• As of April 30, David remains optimistic, particularly given materials (+39% each). In contrast,
expectations that beaten-down value stocks hurt by the pandemic will notable "laggards" included health care
benefit from economic reopenings. (+13%), consumer staples (+15%) and
utilities (+17%).
Not FDIC Insured • May Lose Value • No Bank GuaranteePORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
Q&A
An interview with Portfolio Manager
David Jenkins
Q: David, how did the fund perform for the six
David Jenkins
Portfolio Manager months ending April 30, 2021
The fund gained 6.33%, which was significantly behind both
Fund Facts the 13.92% advance of the benchmark Russell/Nomura Mid-
Small CapSM Index and the peer group average. Looking
Trading Symbol: FJSCX
back 12 months, the story was similar. The fund rose 21.10%,
Start Date: November 01, 1995 which lagged the 28.94% gain of the Russell/Nomura
benchmark and also the peer group average.
Size (in millions): $498.93
Q: What factors drove the benchmark higher
the past six months
News in November that COVID-19 vaccines would soon be
Investment Approach approved pushed global equity markets higher. In Japan, the
economy began to recover, and unemployment fell below
• Fidelity® Japan Smaller Companies Fund is a country-
focused equity strategy that seeks long-term growth of 3% by period end. The yen weakened relative to the U.S.
capital by investing primarily in the securities of dollar, particularly helping large-cap exporters. However, the
Japanese issuers, and other investments that are tied vaccine rollout in Japan was slower than anticipated, which
economically to Japan, with smaller market kept pressure on certain industries, such as tourism, travel
capitalizations. and entertainment.
• Our investment approach is anchored by the philosophy Amid this backdrop, large-cap, low-quality and value stocks
that purchasing high-quality companies below their led the benchmark higher. Energy, materials, information
estimated fair value can generate excess return, and technology and industrials stocks were notably strong
help manage risk, over a full market cycle. performers, whereas more-defensive sectors, such as
• We aim to identify and exploit mispricing of individual consumer staples, health care and utilities, underperformed.
stocks in the Japanese market, where 75% of the
companies lack any sell-side coverage. Q: Why did the fund lag the benchmark
• Specifically, we seek small-cap companies with stable As always, I focused on high-quality stocks with attractive
returns on capital, durable competitive advantages, valuations. More specifically, I Iooked for profitable
strong free cash flow and attractive reinvestment companies with healthy balance sheets, strong free-cash-
opportunities. We also favor firms with attractive flow conversion and competitive moats around their
shareholder remuneration policies, whether in the form business. Historically, buying quality companies at attractive
of buybacks or dividend payments. valuations has worked in Japan. However, as economic
growth recovered, low-quality stocks had the most upside.
The fund's small-cap bias was an added headwind, as large
caps generally outperformed this period. Our weighted
median market cap was $1.6 billion, compared with $6.8
billion for the benchmark. Conversely, my value focus was a
plus for the fund.
In terms of sectors, security selection in industrials – notably
the capital goods segment – as well as in information
technology, materials and communication services detracted
from relative performance the past six months.
2 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
Q: Which stocks did the most damage Q: Shifting gears, which sectors and stocks
Versus the benchmark, our biggest disappointments were helped relative performance
stocks that had previously been outsized work-from-home Positioning in the financials sector, stock picks in real estate
beneficiaries. Z Holdings (the old Yahoo Japan) hurt most. and an underweighting in consumer staples gave modest
This is a large-cap internet company with an attractive boosts to the fund's relative performance. Our top
valuation that fit my investment criteria. For much of 2020, contributor was Central Automotive Products (+38%), an
the company had gained from strong demand for its overweighting that was our largest position at period end.
shopping portal and online advertising. However, this period This company makes after-market autobody coatings, which
the stock returned -33%, as investors shifted to more are applied to new cars after purchase to resist dust and dirt
economically sensitive stocks. I expect Z to grow revenue and repel rain. During the pandemic, demand for new cars
and earnings over the long term, but market sentiment grew as consumers sought safe ways to commute and travel,
focused on the potential for a near-term slowdown. I pared in turn boosting sales for autobody coatings. The stock
our stake in the firm before period end. delivered double-digit earnings per share growth, with an
Another disappointment for the fund was Arcland Sakamoto attractive price/earnings (P/E) ratio (a measure of valuation).
(-28%), a small-cap company that is a leading home Another standout was Fast Fitness Japan, the master
improvement retailer in Japan. The stock fell as investors franchisee in Japan for the U.S.-based Anytime Fitness brand
locked in profits, following gains from more people staying of fitness clubs. This non-benchmark holding was a new
home and undertaking renovations plus acquisition news. addition to the portfolio following the company's initial
Despite the share price decline, I held on to Arcland because public offering (IPO) in December. The stock rose 181%,
the valuation was cheap, and I still believe in the company's thanks to very good financial results and raised guidance for
revenue growth potential over the next three to five years. operating profit. Both Fast Fitness and Central Automotive
were consumer discretionary stocks.
Q: What about other disappointments Lastly, an overweight in Dexerials (+65%), a tech hardware
company that produces optical devices and film, magnetic
Shares of Elecom, a small/mid-cap (SMID) tech hardware
disks, and electronic and adhesive parts, also contributed.
company that focuses on peripherals for phones, tablets and
With more employees working from home, demand for its
personal computers returned -16% because investors
products increased. The company upped its guidance for
thought other sectors would provide better earnings growth,
operating profit for the year ended March 31, 2021, on three
especially given that the company was lapping a high base
separate occasions, and the share price followed. Each of
from last year. I trimmed our stake, but kept some exposure,
these stocks fit my quality and value criteria.
given the company's excellent track record for revenue
growth and great shareholder remuneration policy.
Q: What's your outlook as of April 30, David
Workman (-25%), a mid-cap retailer that is a leader in
clothing for construction workers, was another I'm optimistic. I expect the Japanese economy to recover to
disappointment. The company recently introduced a product its pre-COVID-19 growth rate by the end of 2022. Smaller
line and retail stores geared to consumers (Workman Plus) companies in Japan stand to gain as the economy reopens
and is launching a new line for women. The business has because they tend to be more domestically focused than
been growing primarily through same-store sales and, to a larger-caps. Valuations on Japanese stocks generally remain
lesser extent, the opening of new stores. But consumers attractive (or cheap) compared to U.S. stocks, with small-caps
were not shopping during the COVID-19 states of offering particularly good value, in my view.
emergency, which hurt the stock. In my view, the share price With that in mind, I plan to emphasize economically sensitive
did not reflect Workman's growth potential from its value stocks and undervalued secular growers that fit my
Workman Plus and Workman for Women initiatives. process, while avoiding expensive, speculative stocks with
Elsewhere, As One (-13%), a small-cap health care no profits that are vulnerable to rising interest rates. The fund
equipment company, fell from favor as investors looked for ended the six-month period with increased weightings in
more cyclical stocks. As One provides consumable lab financials and materials − sectors that are positively
equipment online and through mail order to research labs, correlated with rising interest rates – and reduced exposure
health clinics and hospitals. It remained in the portfolio to negatively correlated sectors, namely health care and
because it fit my quality criteria, given its net cash balance consumer staples. ■
sheet, strong free-cash-flow growth, share buybacks, and
secular growth tailwinds. All these detractors were
overweight fund positions relative to the benchmark.
3 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
David Jenkins on following the
physical fitness theme in Japan:
"Estimates are that less than 5% of adults in Japan
currently belong to gyms, compared with 20% in the
U.S. Over time, I believe there are multiple reasons
why Japan's fitness participation rate is likely to
increase, expanding the market for gym operators.
"First, awareness about the importance of physical
fitness in Japan is increasing as more people
understand the health risks of not being physically
fit. Second, the government is encouraging a
healthy lifestyle, with more balance in daily routines,
including work schedules; previously, the lifestyle of
a salaried person did not allow time to work out,
given long workdays and commutes. The
government hopes to tame medical costs, increase
labor productivity and extend careers and lifespans
by encouraging exercise. Even during the COVID-19
states of emergency, gyms in Japan stayed open.
"The fund owns two small-cap physical fitness
companies: Curves Holdings and Fast Fitness Japan.
Curves, which caters to women ages 40 and up, has
nearly 2,000 franchises in Japan. It's growing by
adding incremental members to existing clubs,
which is very profitable, and launching Curves for
Men, aimed at men ages 50 and up who are not
serious athletes. The company has aggressively
marketed the message that working out and being
physically fit are necessary for a healthy immune
system – a great selling point. Pre-COVID-19, the
company had a high operating profit margin and
return on equity.
"Fast Fitness Japan is a high-quality business, with
an operating profit margin north of 20%, that most
analysts do not follow. I thought the company's
December IPO seemed mispriced, with a forward
P/E of around 12x's, versus 20x's or higher for other
gym operators. I expected Fast Fitness would be
more profitable and less capital intensive than
competitors because it's a franchise model with only
about 900 locations. The stock rose sharply after the
IPO, and I believe the company could have strong
revenue and earnings growth ahead. If gym
participation rates in Japan rise to 10%, Fast Fitness
estimates it could expand to 3,000 gyms."
4 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
ASSET ALLOCATION
Relative Change
From Six Months
Asset Class Portfolio Weight Index Weight Relative Weight Ago
International Equities 98.63% 100.00% -1.37% 1.15%
Developed Markets 98.63% 100.00% -1.37% 1.15%
Emerging Markets 0.00% 0.00% 0.00% 0.00%
Tax-Advantaged Domiciles 0.00% 0.00% 0.00% 0.00%
Domestic Equities 0.00% 0.00% 0.00% 0.00%
Bonds 0.00% 0.00% 0.00% 0.00%
Cash & Net Other Assets 1.37% 0.00% 1.37% -1.15%
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.
MARKET-SEGMENT DIVERSIFICATION
Relative Change
From Six Months
Market Segment Portfolio Weight Index Weight Relative Weight Ago
Industrials 26.21% 24.22% 1.99% -0.82%
Consumer Discretionary 20.24% 16.95% 3.29% 1.98%
Information Technology 15.47% 15.18% 0.29% -4.05%
Materials 10.22% 10.15% 0.07% 2.10%
Financials 9.73% 8.64% 1.09% 3.68%
Communication Services 6.05% 4.21% 1.84% 0.30%
Consumer Staples 4.35% 8.54% -4.19% -0.10%
Health Care 2.88% 5.56% -2.68% -0.14%
Energy 1.89% 1.41% 0.48% -0.46%
Utilities 0.98% 2.60% -1.62% 0.66%
Real Estate 0.60% 2.54% -1.94% -2.01%
Other 0.00% 0.00% 0.00% 0.00%
5 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
COUNTRY DIVERSIFICATION
Relative Change
From Six Months
Country Portfolio Weight Index Weight Relative Weight Ago
Japan 98.65% 100.00% -1.35% -0.42%
Other Countries 0.00% N/A N/A N/A
Cash & Net Other Assets 1.35% 0.00% 1.35% 0.42%
6 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
10 LARGEST HOLDINGS
Portfolio Weight
Market Segment Portfolio Weight
Holding Six Months Ago
Central Automotive Products Ltd. Consumer Discretionary 4.51% 3.14%
Amano Corp. Information Technology 2.44% 2.07%
T&D Holdings, Inc. Financials 2.43% 1.73%
SK Kaken Co. Ltd. Materials 2.35% 2.30%
Sumitomo Mitsui Financial Group, Inc. Financials 2.25% --
Tokio Marine Holdings, Inc. Financials 2.25% 0.98%
ORIX Corp. Financials 2.09% 1.02%
Inaba Denki Sangyo Co. Ltd. Industrials 1.99% 2.01%
Renesas Electronics Corp. Information Technology 1.90% 1.91%
San-Ai Oil Co. Ltd. Energy 1.89% 1.67%
10 Largest Holdings as a % of Net Assets 24.10% 23.00%
Total Number of Holdings 74 73
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: Cumulative Annualized
Periods ending April 30, 2021 6 1 3 5 10 Year/
Month YTD Year Year Year LOF1
Fidelity Japan Smaller Companies Fund
6.33% -2.03% 21.10% 1.40% 8.83% 9.89%
Gross Expense Ratio: 0.93%2
Russell/Nomura Mid Small Cap Japan Index (Gross) 13.92% 0.86% 28.94% 2.53% 8.20% 7.79%
Fidelity Japan Smaller Companies Blend 13.92% 0.86% 28.94% 2.53% 8.20% 7.79%
Morningstar Fund Japan Stock 15.94% 1.24% 30.64% 4.44% 9.73% 8.36%
% Rank in Morningstar Category (1% = Best) -- -- 97% 83% 55% 27%
# of Funds in Morningstar Category -- -- 42 34 29 20
1 Lifeof Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/1995.
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. It
does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio.
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. Please see the last page(s) of this Q&A document for most-recent calendar-
quarter performance.
7 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021
Definitions and Important Information sector or industry.
Information provided in this document is for informational and RANKING INFORMATION
educational purposes only. To the extent any investment information
© 2021 Morningstar, Inc. All rights reserved. The Morningstar
in this material is deemed to be a recommendation, it is not meant to
information contained herein: (1) is proprietary to Morningstar
be impartial investment advice or advice in a fiduciary capacity and is
and/or its content providers; (2) may not be copied or
not intended to be used as a primary basis for you or your client's
redistributed; and (3) is not warranted to be accurate, complete or
investment decisions. Fidelity, and its representatives may have a
timely. Neither Morningstar nor its content providers are
conflict of interest in the products or services mentioned in this responsible for any damages or losses arising from any use of this
material because they have a financial interest in, and receive information. Fidelity does not review the Morningstar data and, for
compensation, directly or indirectly, in connection with the mutual fund performance, you should check the fund's current
management, distribution and/or servicing of these products or prospectus for the most up-to-date information concerning
services including Fidelity funds, certain third-party funds and applicable loads, fees and expenses.
products, and certain investment services.
% Rank in Morningstar Category is the fund's total-return
FUND RISKS percentile rank relative to all funds that have the same Morningstar
Stock markets, especially foreign markets, are volatile and can Category. The highest (or most favorable) percentile rank is 1 and
decline significantly in response to adverse issuer, political, the lowest (or least favorable) percentile rank is 100. The top-
regulatory, market, or economic developments. Foreign securities performing fund in a category will always receive a rank of 1%. %
are subject to interest rate, currency exchange rate, economic, and Rank in Morningstar Category is based on total returns which
political risks. The risks are particularly significant for funds that focus include reinvested dividends and capital gains, if any, and exclude
on a single country or region. The securities of smaller, less well- sales charges. Multiple share classes of a fund have a common
known companies can be more volatile than those of larger portfolio but impose different expense structures.
companies.
RELATIVE WEIGHTS
IMPORTANT FUND INFORMATION Relative weights represents the % of fund assets in a particular
Relative positioning data presented in this commentary is based on market segment, asset class or credit quality relative to the
the fund's primary benchmark (index) unless a secondary benchmark benchmark. A positive number represents an overweight, and a
is provided to assess performance. negative number is an underweight. The fund's benchmark is listed
immediately under the fund name in the Performance Summary.
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.
Fidelity Japan Smaller Companies Blend represents the
performance of the Russell/Nomura Mid-Small Cap Index since
January 1, 2009, and the Russell/Nomura Small Cap Index prior to
that date.
Russell/Nomura Mid-Small Cap Index measures the performance of
medium and small companies that represent the smallest 50% of
companies of the Russell/Nomura Total Market Index as defined by
float-adjusted market-capitalization. The Russell/Nomura Total
Market Index represents 98% of the investable Japan equity market,
consisting of common stock securities domiciled in Japan.
MSCI ACWI (All Country World Index) Index is a market-
capitalization-weighted index that is designed to measure the
investable equity market performance for global investors of
developed and emerging markets.
Tokyo Stock Price Index (TOPIX) is a market-capitalization-weighted
index of the common stock of the large companies that make up the
First Section of the Tokyo Stock Exchange.
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. They
should not be construed or used as a recommendation for any
8 |PORTFOLIO MANAGER Q&A | AS OF APRIL 30, 2021 Manager Facts David Jenkins is a portfolio manager and research analyst in the Equity division at Fidelity Investments. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing, and other financial products and services to institutions, financial intermediaries, and individuals. In this role, Mr. Jenkins is responsible for managing the Fidelity Japan Smaller Companies Fund. Additionally, he performs fundamental research on Europe, Australasia and Far East (EAFE) small-cap companies in the Materials sector. Prior to joining Fidelity in 2007, Mr. Jenkins served as vice president and equity analyst at Eaton Vance Management. Previously, he was a senior investment associate focusing on domestic value equities at Putnam Investments. He has been in the financial industry since 2000. Mr. Jenkins earned his bachelor of science degree in business finance from Brigham Young University. He has also been a CFA® charterholder since 2003. 9 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
PERFORMANCE SUMMARY: Annualized
Quarter ending September 30, 2021 1 3 5 10 Year/
Year Year Year LOF1
Fidelity Japan Smaller Companies Fund
9.45% 5.00% 8.09% 11.27%
Gross Expense Ratio: 0.93%2
1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/1995.
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. It
does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio.
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 Information included on this page is as of the most recent calendar
the investment objectives, risks, charges, and expenses. For quarter.
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respective owners.
Past performance is no guarantee of future results.
All other marks appearing herein are registered or unregistered
Views expressed are through the end of the period stated and do not trademarks or service marks of FMR LLC or an affiliated company.
necessarily represent the views of Fidelity. Views are subject to change at
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