A combination of thin cash generation and macro risks such as the possibility of British exit from the European Union means there are a lot of pitfalls lurking for investors, Hamilton said.
The key elements of the ‘safety check’ Hamilton uses are to ensure the companies the fund buys into are positive in retained cash terms, and if there is debt on the books it must be considered to be clearable in a ‘reasonable amount of time.’
“We see elevated risk at the moment and a large number of UK companies we look at are failing our safety check, particularly in the FTSE 100,” Hamilton said. “There are a lot of companies paying dividends using debt for example, or are paying using cash but leaving themselves with too little afterwards to be sustainable. This was not the case 18 months ago and is a relatively new phenomenon,” she added.
Hamilton is joint manager of the £563m fund with George Godber. The pair joined Miton from Matterley Asset Management in 2012.
Hamilton said another part of this safety first approach is to have ‘two sets of eyes on everything’ where both herself and Godber will oversee every investment decision, rather than splitting duties.
This double check process is something which she believes has helped them ‘avoid the landmines’ that can drag down fund performance.