Some call it rank opportunism, others call it living in eternal hope, but in terms of investment savvy, it’s not a bad time to take a punt on Cuba, where Fidel Castro after nearly five decades in power this week announced he will step down.
Apart from certain Washington policymakers and the Cuban expatriate community, the news has also heartened investors with a taste for the exotic — not least the folks at the only closed-end fund focused on the Caribbean, including Cuba. The Herzfeld Caribbean Basin Fund (ticker name CUBA) surged 20 per cent this week after Castro’s announcement — the most in its 13-year history - although, notes Bloomberg, the fund has fallen 33 per cent since September 2007. The fund reports an annual average return over the last 10 years of 7.3 per cent, as compared with about 14.8 per cent a year for the MSCI Emerging Market Latin America Index, adds Bloomberg.
The $30m exchange-traded mutual fund owns shares of Shawnee Mission, Kansas-based hog producer Seaboard and Florida-based shipper Trailer Bridge, according to its website; these shares also gained on speculation that US trade with Cuba will boost profit, adds Bloomberg.
In the words of Thomas J Herzfeld, chairman and president, the fund invests in issuers that are “likely to benefit from economic, political, structural and technological developments” in Caribbean Basin countries, which include, among others, Cuba, Jamaica, Trinidad and Tobago, the Bahamas, the Dominican Republic, Barbados, Aruba, Haiti, the Netherlands Antilles, the Commonwealth of Puerto Rico, Mexico, Honduras, Guatemala, Belize, Costa Rica, Panama, Colombia, the US and Venezuela.
So with a view to possible resumption of US-Cuba trade, after decades of bilateral enmity, Herzfeld has launched a rights offering for his fund. In his view, any consideration of a change in US policy is likely to take place toward the end of this year, especially if Cuba were to make the first gesture, for example by releasing political prisoners or announcing plans for free elections.
But wait a moment, says ETFtrends, citing a report in Investor’s Business Daily:
Don’t expect trade with Cuba to resume anytime soon. After all, one Castro has handed control of his country to another Castro. Congress will consider lifting the embargo only when Raul Castro restores property, voting and human rights to the citizens of Cuba.
When that happens, though, the Herzfeld fund is “positioned to ride that lift”, says Herzfeld, who doesn’t solicit new business and runs his firm out of an unmarked office building in Miami to “avoid attracting attention”, adds Bloomberg.
Miami is a very politically charged when it comes to Cuba…We don’t want people marching in the streets in front of our office, even if it’s favourable.
An embargo end would be the real signal to start mixing the mojitos, Herzfeld said. “Any boom in Cuba will proliferate throughout the region, and investors will reap the benefit”, he told Bloomberg.
