Castro Death Watch Stimulates Cuba Fund
Friday January 19, 7:00 pm ET
Christina Wise
Although Fidel Castro's sudden illness last summer focused the world's
attention on the island nation, Herzfeld Caribbean Basin has long been
interested in the region.
The Miami-based, closed-end mutual fund (NASDAQ:CUBA - News), which was
founded in 1994, invests in companies doing business in the Caribbean
basin as well as in those poised to do business with Cuba if the U.S.
trade embargo is lifted.
"Two-thirds of the (stocks in the) portfolio were picked with two
ideas," said Thomas J. Herzfeld, the fund's portfolio manager and
chairman and president of Thomas J. Herzfeld & Co. "One, companies that
would do well if there were no changes in Cuba -- and they have -- and
two, companies that would benefit strongly from resumption of trade with
Cuba."
Through Thursday's close, Herzfeld's share price had more than doubled
in just six months.
Fixed Shares
Herzfeld Caribbean is a closed-end fund, which is a mutual fund that
trades like a stock. It has a fixed number of shares, and since
investors can't redeem shares like open-end funds, it's an ideal vehicle
for investing in emerging economies.
"Closed-end funds, dating back to the 1800s, are the best way to invest
in an emerging market where there's a thin or no (stock) exchange,"
Herzfeld said. "The reason for that is that with mutual funds, they have
to take in new money and give it back at the whims of shareholders."
But he also cautions that no one knows when the U.S.-Cuba trade embargo
will disappear.
"The fact that Castro dies doesn't mean the embargo is going to be
lifted automatically," Herzfeld said.
Herzfeld Caribbean's largest holding, which accounts for nearly 16% of
its portfolio, is Florida East Coast Industries (NYSE:FLA - News). The
stock hit an all-time high in mid-December and has since pulled back to
its 10-week moving average line.
Railroad
Florida East Coast develops commercial and industrial real estate and
operates railroads in Florida.
"It operates the main freight line that runs between Jacksonville,
Florida, and Miami," Herzfeld said. "We believe a large portion of the
freight going to Cuba will run up and down the east coast of Florida.
The railroad gauge is the same (in Cuba) as here."
The fund's fourth-largest holding,Seaboard (AMEX:SEB - News), ventured
into new-high territory last week.
"Here's an example of a company doing very well now and will continue to
do very well once the embargo is lifted," Herzfeld said. "They operate
the largest fleet of containerships in the Caribbean and also are in the
food business. We started buying SEB very early in the fund's life at
about $200 a share."
Other stocks in the fund include Copa Holdings (NYSE:CPA - News). The
Panama-based airline flew out of a base in mid-August and through
Thursday had climbed 125%.
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