As a Knicks fan, I love listening to Walt "Clyde" Frazier's infamous sayings while listening to Knicks games on MSG TV in NY. Instead of calling first-year NBA players rookies like the rest of the universe, he calls them neophytes. He has many famous sayings and complex phrases. One of his most famous terms is "matador defense". Simply put, this is when the offensive team is allowed to score a basket with little to no resistance from the team on the defensive side of the ball.
Unfortunately, the term "matador defense" appears to be the perfect characteristic to describe the Legg Mason Opportunity Trust C (MUTF:LMOPX). This mutual fund has a tremendous amount of downside risk and it has shown in the negative performance metrics.
Yet, it is important to focus on the fact that this mutual fund has not able to generate a return that is sufficient given the risk in the fund. Throughout the fund's recent and long-term history, the fund's return has been in the red when compared to its benchmarks. This can be seen in the chart below. As you can see, the only ratio in which the Legg Mason Opportunity Trust C's return exceeds its benchmark is the 3-year ratio.
The fund's inherent downside risk can be seen in its sector weightings. This can be seen in its heavy concentration on the consumer cyclical sector. The fund's weighting in the consumer cyclical sector was 20% more than the benchmark and category average. In the meantime, the fund has absolutely no weighting in the defensive sectors such as the consumer defensive and utilities sector.
Given some of the fund's value and growth measures, one cannot help but see that there were warning signs rampant. This could be seen in the undervaluation of all its price multiples. Additionally, the fund has a negative sales growth and an anemic cash-flow growth that doesn't pose well for the fund's holdings in terms of future sales. The paltry results can be seen below.
Unfortunately, the inherent downside risk of the Legg Mason Opportunity Trust C can be seen in the fund's downside capture ratio. The downside capture ratio is highly vulnerable to bear markets such as the one that is currently taking place.
This is clear in every ratio that can be seen in the chart below. Even though the fund's downside capture ratio has trended considerably downward over the past five years, it is still abnormally high and is indicative of a fund that's quite vulnerable to down markets.
The Legg Mason Opportunity Trust C should not be touched by investors at this time. Clearly, the fund poses significant risk and has an insufficient return to boot. To make matters worse, the fund is more expensive than its competitors. The fund's expense ratio is 2.09% as of its prospectus on May 1st 2015. By comparison, the Morningstar category average was 1.20% and the fee level group comparison median expense ratio was 1.99%.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.