Investor Views: “I’ve Cashed in my China Fund for Buy-to-Let”

ISA investor Steve Cherrett tells Morningstar why he’s ploughing the money he’s made through his tax-efficient investments into the buy-to-let market

Emma Simon 2 September, 2015 | 11:25AM
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Steve Cherrett describes himself as an ‘accidental landlord’. He was unable to sell his flat as a result of property prices stalling in 2008, so decided to let it instead. 

Thanks to the prolonged low interest rate environment Cherrett says he has made a reasonable return on his property investment. So much so, that last month he decided to cash in his ISA holdings to fund a deposit on a second flat in the Teeside area, close to where he lives.

“I see both these flats as being long term investments that will hopefully help out my kids,” he said. “Property prices have not been buoyant in this area, but over 15 years or so I would hope to pay off the mortgage and own these assets outright. Hopefully the rent will cover the mortgage interest and give me a small return on top.” 

Cherrett says his ISA holdings have made a positive return in recent years, but given the recent stock market turmoil - and his concerns about more shocks in store - he's glad he made the decision to bank some of these gains and diversify into residential property.

Steve Cherrett with his daughter AliceOne of the funds he has recently sold is Henderson China Opportunities. He says: “I first invested in this back in 2000. Not surprisingly this has been a bumpy ride, but over the last decade and a half I’ve seen the value of my holding increase fourfold.”

He initially invested a lump sum but also drip-fed more money in over this period, particularly at times when the market dipped.

Given the shakeout in the Chinese stock market last month, Cherrett says he’s lucky to have exited this market when he did.

For those who want to brave the volatile world of Chinese equities this Henderson fund gets an impressive Bronze rating from Morningstar fund analysts reflecting their confidence in his deliver value over the longer-term for investors. It is managed by Charlie Awdry, who has accumulated a wealth of experience in this market over the past decade. Awdry has a four-star rating showing he has managed to deliver consistent past performance.

Emerging Market Funds for Two Long Term Investors

Cherrett takes a similar higher-risk approach in the investments he’s made for his children. These include investments in Hong Kong and China for his daughter Alice, and a more recent investment in Invesco Latin America, on behalf of his son, Rufus.

“The investments in Latin America have not performed as well as those in Asia, and to date we’ve lost money on this investment,” Cherrett admitted.

This fund has fallen by 12% over the past three years and is down 9% over five years, according to Morningstar data.

This though reflects wider problems in this region, where there have been headwinds from poor commodity prices and unpredictable politics. This Invesco fund itself receives a three star rating - showing that although investors like Cherrett have lost money in this fund, losses are more significant in other funds invested in this region.

Cherrett says he is considering getting out - even though this will mean taking a loss - and reinvesting the money into another fund. “I had a similar holding in my SIPP and I’ve already switched that into a European fund instead.”

Reinvesting Income to Boost SIPP Returns

Elsewhere in his SIPP, Cherrett invests in a number of more mainstream core funds, including Invesco Perpetual Income. Despite its star manager - Neil Woodford - leaving last year, Cherrett says he is sticking with this fund, which has recently been awarded a Bronze Rating by Morningstar fund analysts.

They describe the current manager, Mark Barnett, as ‘a skilled UK equity investor’. Morningstar analysts add: “Although the team changes in 2014 and [Barnett’s] workload temper our conviction for this fund we think the fund worthy of a positive rating… while Barnett’s strong record on similar mandates gives him a Bronze Rating.”

AIM Shares Prove Hit and Miss

Cherrett also dabbles in direct shareholdings from time to time. He says he considers this more of a gamble, and would is only prepared to invest small amount, that he can potentially afford to lose. 

He mainly invests in smaller companies, many of which are listed on the AIM market.

Cherrett works as a mortgage specialist for a firm of financial advisers and says that he picks up the odd tip from colleagues from time to time. “If a company sounds like it has got an interesting story I might take a bit of a punt on it, but I’d only invest a small amount.

“I’d rather not lose the money obviously, but I find that these investments either do very well or go spectacularly wrong.”

His best investment has been in Rockhopper Exploration (RKH). Although shares in this oil and gas exploration firm have been on a decline since early 2012, Cherrett says he invested prior to this, when prices rose rapidly in 2010.

“Fortunately I only held these shares for a relatively short time, and got out before the oil price fell. As a result I made an excellent return on these shares.”

But not all his forays into the commodities market have proved as lucrative. His worse investment has been Afren an African-focused oil company which recently went into administration.

He said: “I bought these shares when they were around 28p each. When started to slide when the oil price slumped and are now effectively worthless.”

How do you decide what funds or shares to buy? Do you have a fail-safe sell trigger? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on editorial@morningstar.co.uk

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk