Fidelity International Small Cap Fund (FISMX) recently disclosed its performance for the second quarter of 2025, revealing a 13.99% return for its Retail Class shares. This figure, however, lagged behind its designated benchmark, the MSCI All Country World Index, which saw a more substantial increase of 17.02% over the same period. The disparity in performance was largely influenced by the fund's specific investment choices across different geographical regions and industry segments.

Despite the recent underperformance, the fund's management expresses a continued positive outlook on the prospects of international small-capitalization equities. Their optimism is particularly strong regarding markets in Europe, excluding the United Kingdom, as well as the U.K. itself. This view is underpinned by what they perceive as compelling valuations within these markets and an anticipation of new spending patterns that could benefit smaller companies.

The fund's investment philosophy remains centered on a value-driven approach, prioritizing small-cap companies that demonstrate high-quality characteristics and strong cash generation. The objective is to identify and invest in businesses that are trading below their intrinsic value, thereby aiming to achieve superior returns over a complete market cycle. Currently, the fund's portfolio reflects a less defensive posture, with a reduced allocation to emerging markets and China, while simultaneously increasing its exposure to Europe (excluding the U.K.) and the U.K. markets. This strategic realignment suggests a deliberate shift towards areas identified with higher growth potential and favorable valuation characteristics.

In essence, the fund's dedication to meticulous research and a disciplined, value-oriented investment strategy exemplifies a commitment to long-term growth and stability. By strategically positioning its assets in what it identifies as undervalued yet promising international small-cap markets, the fund not only seeks to overcome short-term challenges but also endeavors to capitalize on opportunities that foster sustained financial health and robust returns for its investors.