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Fidelity® Growth Company Fund

  • Symbol: FDGRX
  • No Transaction Fee No Transaction Fee 1
  • Closed to new investors
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  • Quarterly Fund Review
Fidelity Growth Company Fund: Quarterly Fund Review
DECEMBER 31, 2014
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Investment Approach

  • Fidelity® Growth Company Fund invests across a spectrum of companies, from blue chip to aggressive growth.
  • Our investment approach is anchored by the philosophy that the market often underestimates the duration of a company's growth, particularly in cases where the resiliency and extensibility of the business model are underappreciated.
  • We focus on firms operating in well-positioned industries and niches that we find capable of delivering persistent sales and earnings growth.
  • This approach typically leads us to companies that we think have the potential to unlock shareholder value through either a growth-enhancing product cycle or an internal catalyst such as a turnaround or acquisition.
  • We believe it critical that companies fund their own growth - through the cash they generate - and benefit from management teams focused on creating long-term shareholder value.

Performance Review

For the three months ending December 31, 2014, Fidelity® Growth Company Fund outpaced its benchmark, the Russell 3000® Growth Index. Successful stock selection in pharmaceuticals, biotechnology & life sciences industry - an area where the fund was concentrated and where we have found many of our best ideas - was the biggest source of strength this past quarter.

Several biotech and specialty pharma names landed among the fund's top performers, including Isis Pharmaceuticals, the biggest relative contributor, as well as Alkermes and Regeneron Pharmaceuticals. Shares of out-of-index Isis flourished in the fourth quarter as it continued to advance more of its pipeline drugs to late-stage development. Alkermes saw an uptrend in its share price after the firm announced in October that the U.S. Food and Drug Administration's (FDA) had accepted the company's New Drug Application - first step in the FDA approval process - for its treatment for schizophrenia. Regeneron, one of the fund's largest holdings, benefited from strong demand for Eylea®, the company's treatment for macular degeneration, an increasingly common eye disease. Also, in October, the firm reported positive results from a head-to-head comparison trial between Eylea® and its major competitor.

The industrials sector was another strong-performing area of the fund this quarter, especially stock picks in the transportation industry. Airlines in particular benefited from a steep decline in the price of jet fuel and an increase in U.S. travel. Here, the fund's stakes United Continental Holdings and JetBlue Airways, an out-of-benchmark name, were winners.

Stock picking in the information technology sector, especially among semiconductor & semiconductor equipment stocks, dragged on the fund's relative results. For example, photovoltaic-panel maker First Solar was our biggest detractor during the quarter. The stock slumped along with the solar industry generally as the price of oil declined. While solar fundamentals are largely unrelated to oil prices, the drop in oil prices weighed on investors' sentiment toward energy sources in general, including alternatives such as electricity-generating solar operators and their suppliers. We're still positive on the potential for solar as a secular theme, and the fund remained invested in First Solar at quarter-end.

An overweighting in Google was another technology detractor. Google shares returned -10% for the quarter, as the Internet search provider reported disappointing third-quarter revenue and earnings, attributed to fewer-than-expected clicks on the company's paid online advertisements. A 46% increase in research-and-development spending pressured profits, as did higher taxes and the company's largest hiring effort in three years. Despite the stock's performance this period, we remained bullish on Google's long-term potential and held onto the stock.

Heavier-than-index exposure to Cree also hampered results. The stock was hurt when the firm announced weaker-than-expected first-quarter financial results in October. We're still positive on Cree because we like its competitive, forward-looking management team and its industry-leading LED (light-emitting diode) bulbs and fixtures, which are still in the early stages of global adoption.

LARGEST CONTRIBUTORS VS. BENCHMARK
Holding Market Segment Average Relative Weight Relative Contribution (basis points)*
Isis Pharmaceuticals, Inc. Health Care 0.96% 42
Alkermes PLC Health Care 1.25% 34
Bluebird Bio, Inc. Health Care 0.25% 28
lululemon athletica, Inc. Consumer Discretionary 0.98% 25
Uber Technologies, Inc. 8.00% Information Technology 0.24% 21
* 1 basis point = 0.01%.
LARGEST DETRACTORS VS. BENCHMARK
Holding Market Segment Average Relative Weight Relative Contribution (basis points)*
First Solar, Inc. Information Technology 0.67% -33
Google, Inc. Class A Information Technology 1.65% -27
Continental Resources, Inc. Energy 0.39% -26
Cree, Inc. Information Technology 0.56% -19
Pioneer Natural Resources Co. Energy 0.44% -16
* 1 basis point = 0.01%.

Outlook and Positioning

The U.S. continued to see healthy signs of economic recovery, with housing and non-residential construction moving in the right direction. We expect to see slow-and-steady growth here. We're optimistic that the eurozone may be through the worst of its own economic challenges, given the potential for the European Central Bank to adopt a more aggressive monetary policy. In our view, China is taking the right steps to try to rebalance its economy, but it may not be a smooth process. Overall, global growth was relatively subpar. Consistent with our investment strategy, our focus remains out a few years, and we're confident about the fund's positioning for the longer-term.

At quarter-end, the fund's largest overweighting was in health care, mostly due to our positions in biotechnology, where we seek to diversify holdings across an array of treatments and times-to-maturity. Our second-largest relative overweighting was in information technology, where we favored tech companies with what we consider high growth potential versus what we see available in capital goods and machinery stocks, which have similar economic sensitivity as many of the fund's tech holdings. Conversely, the fund's largest sector underweighting at period-end was consumer discretionary, partly due to our preference for companies that specialize in newer forms of media - which are often categorized under information technology - versus older, more-traditional media companies such as newspapers or publishers, which fall under consumer discretionary.

Looking at current investment themes, alternative energy - including solar, wind and geothermal technologies - continues to look promising. Many of these technologies, especially solar power, have become cheaper. The U.S. tends to have attractive energy rates compared with the rest of the world, and thus international markets may be even faster adopters of alternative energy. We've identified firms here with defensible positions and business advantages. This industry can be volatile, but we think it could stabilize somewhat as consumers become more aware of solar's advantages versus traditional energy sources.

We've also been looking at the emergence of immuno-oncology in the biotech industry. Immuno-oncology uses the body's own immune system to target cancer cells, typically by either lowering the resistance of cancer cells to attack or by signaling more clearly where cancer cells are located. Promising signs showed up in areas like metastatic melanoma, a disease where immuno-oncology seems to be driving long-term cures in some patients. This technology, while still nascent, could transform the treatment options for a number of cancers.

1. No Transaction Fee Fidelity funds are available without paying a trading fee to Fidelity or a sales load to the fund. However, the fund may charge a short-term trading or redemption fee to protect the interests of long-term shareholders of the fund. Shares are subject to the fund's management and operating expenses. See Expenses & Fees for more information.

Morningstar Category: Large Growth
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