1. Finding Value with Global Equities The importance of being active in a low yield world November 2014 Charles Payne Investment Director Equity Income Products

2. Agenda 2 2 Global Equity Stock Picking and Yield 1 Finding value in Global Equities

3. If you are going to be active – give yourself the widest opportunity set  Grinold & Khan – Active Portfolio Management (1994)  The ‘generalized’ version of Grinolds Law of Active Management:  Where –IR = Active Return Potential –B = Breadth of Opportunity Set –HR = Hit Rate –R = Reward for each correct decision IR = B x HR x R 3

4. Volatility is the oxygen of stock picking Greater dispersion = greater alpha potential Source: Datastream & FIL Limited 31/10/2014. Dispersion of stock returns: The maximum and minimum returns of constituents of the MSCI AC World as at 31/10/2011, grouped by MSCI Sector and excluding the 10 largest returns and 10 smallest (most negative) returns in each sector. Sector dispersion shows the maximum and minimum returns for the 10 MSCI AC World sector indices. All returns are capital only in US dollars for the 3-year period 31/10/2011 - 31/10/2014. 3 Year Returns Dispersion (USD) - to 31/10/2014 4

5. What drives individual stock returns? Through time, stock specific factors dominate Source: Citigroup MSCI AC World March 2014 5

6. Evidence that correlation is falling Better times for active managers? 6 Source: Nomura ;Russell 1000 index 28.02.14

7. Agenda 7 2 Global Equity Stock Picking and Yield 1 Finding value in Global Equities

8. Reaching for yield Yields across asset classes 8 Central banks are forcing you up the risk spectrum Source: Datastream, BofA Merrill Lynch Bond Indices - Redemption Yields, MSCI Equity Indices – Dividend Yields (to 31 August 2014). Government Bonds Investment Grade Credit High YieldEquities EM Debt Cash Shaded areas = current yields

9. In fact, not a new phenomenon Bond yields have been compressing for 25 years 9 High yield bonds compression = greater relative value in equity income Source: DataStream, 31 August 2014

10. Yield gap: low quality bonds vs. high quality equities BOFA ML High Yield Bond Index vs SG Quality Income Index 10 Source: SG Cross Asset Research, 31 August 2014 ‘Margin of safety’ near an all time low

11. Very different asset backing Credit rating of Fidelity Global Dividend holdings & IBOXX High Yield constituents 11 Source: SG Cross Asset Research, Moodys, Standard & Poors, Fitch, Japan Credit Ratings Agency, Korea Ratings (Bloomberg). June 2014. By design, high yield indices contain the lower quality credits

12. What really drives Equities – 110 years of US Equity returns Dividends are the principal component of total return 12 Real total return including dividends: End value = US$851 + 6.3% p.a. Real capital return excluding dividends: End value = US$8.50 + 1.9% p.a. US$ The ‘eighth wonder of the world’ – the power of compounding Source: Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists: 101 years of Global Investment Returns, Princeton University Press 2002, Credit Suisse Global Investment Returns Sourcebook 2011

13. Dividends dominate wherever you choose to invest Decomposition of regional returns 13 Source: SG Cross Asset Research, MSCI real returns as at Q2 2014, in US$. The decomposition of real equity returns since 1970. The chart demonstrates that the price you buy at is important and the compounding effects over time are a dominant force and fundamentals such as dividend growth and dividend yield become more important over time.

14. Avoid the yield concentration of country indices Global diversification is critical for sustainability 14 A healthy yield underpinned by diverse income stream Cumulative Yield (%) Number of Stocks 50% of yield comes from top 8 stocks in FTSE 100 top 18 stocks in Fidelity Global Dividend Fund Source: Factset, June 2014

15. Be Active – don’t rely on the index delivering yield At both a regional... 15 A healthy, sustainable yield means being active at both a regional.... Source: Fidelity, 30 September 2014. MSCI AC World – yield weighted vs. market cap weighted

16. Be Active – don’t rely on the index delivering yield...and a sector level 16...and a sector basis Source: Fidelity Worldwide Investment, 30 September 2014. MSCI AC World – yield weighted vs. market cap weighted

17. High yields can be a sign of stress The importance of Stock Picking Assessing the sustainability of yields is essential Source; Global developed dividends 1995 – 2013, Societe Generale Cross Asset Research, February 2014. 17

18. Sustainable dividend growth is rewarded Performance and volatility of the ‘Dividend Aristocrats’ Dividend AristocratsMSCI AC World A powerful tailwind for the income investor Source: Citigroup as at June 2014 in USD. The universe is divided into Dividend Aristocrats which are companies that have been able to grow their dividends each year over 10- years and the total and price cumulative returns and volatility of returns of that basket of companies. This is compared to the broader MSCI AC World universe where the same figures are calculated. 18

19. Stock picking in action – a quality compounder Kimberly Clark US, Consumer Staples 19 Source: FactSet, March 2014. For the purposes of illustration only and should not be construed as a recommendation to buy or sell the mentioned security. Third party trademark, copyright and other intellectual property rights are, and remain, the property of their respective owners ‘Boring’ company, exciting returns Resilient return profileGood capital allocation Double digit annualised total return =+

20. Stock picking in action – avoid overpaying for growth Wal-Mart – US/Global Retailer 20 Source: Bloomberg, March 2014. For the purposes of illustration only and should not be construed as a recommendation to buy or sell the mentioned security. Third party trademark, copyright and other intellectual property rights are, and remain, the property of their respective owners Strong growth does not guarantee strong share price performance EPS progressionShare price performancePE rating =x

21. 21 Source: DataStream, Bloomberg 31 August 2014 Result - Quality Income outperforms And with less drawdown in times of market turbulence Bear market A strategy for investors seeking yield but worried about bond prices

22. 22 Source: Morningstar Direct. Basis: Fidelity Global Dividend A-MG-USD nav-nav, gross income reinvested in US dollars to 31/08/2014. Performance / Risk vs. Offshore Global Equity Income Sector Result: Higher return, lower volatility, better yield FF - Global Dividend Fund risk - return matrix Risk / return vs. Global Equity Income Sector since launch Lower volatility than both the index and the peer group

23. Thank you very much Charles Payne Investment Director Equity Income Products

24. Important information This information is for Investment Professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission. Fidelity Worldwide Investment refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. Fidelity Worldwide Investment does not offer investment advice based on individual circumstances. Any service, security, investment, fund or product mentioned or outlined in this document may not be suitable for you and may not be available in your jurisdiction. It is your responsibility to ensure that any service, security, investment, fund or product outlined is available in your jurisdiction before any approach is made to Fidelity Worldwide Investment. This document may not be reproduced or circulated without prior permission. Past performance is not a reliable indicator of future results. Unless otherwise stated all products are provided by Fidelity Worldwide Investment, and all views expressed are those of Fidelity Worldwide Investment.Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. The research and analysis used in this documentation is gathered by Fidelity for its use as an investment manager and may have already been acted upon for its own purposes. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited. Fidelity Funds is an open-ended investment company established in Luxembourg with different classes of shares. Reference to FF before a fund name refers to Fidelity Funds. Fidelity only offers information on products and services and does not provide investment advice based on an individual's circumstances. The value of investments can go down as well as up and investors may not get back the amount invested. For funds that invest in overseas markets, changes in currency exchange rates may affect the value of an investment. Foreign exchange transactions may be effected on an arm's length basis by or through Fidelity companies from which a benefit may be derived by such companies. Past performance is not a reliable indicator of future results. This document may not be reproduced or circulated without prior permission. No statements or representations made in this document are legally binding on Fidelity or the recipient. Data Source – © 2014 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Copyright – © 2014 Morningstar Inc. All Rights Reserved. Morningstar Rating™ as of 29/03/2014. Switzerland: Our legal representative in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Our paying agent for Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. GLEMUS1642-1214 24