Cuba-focused closed-end fund rallies in wake of Castro's death

Seaboard

28/11/2016 19:10

By David Randall 
    NEW YORK, Nov 28 (Reuters) - The only Cuba-focused stock 
fund in the United States rallied more than 13 percent Monday, a 
sign investors expect Fidel Castro's death to continue to open 
up relations between the United States and the island country 
despite President-elect Donald Trump's threat to end the 
normalization process that began under President Obama in 2014.  
    Thomas Herzfeld, who manages the $39.1-million Herzfeld 
Caribbean Basin fund  CUBA.O , said in an interview that he saw 
the President-elect's message as "the start of negotiations."  
    "He's the consummate businessman and it sounds to me like he 
expects the Cuban government to make some changes, but I don't 
see him reversing what Obama did," he said. 
    Trump posted on Twitter Monday morning that "If Cuba is 
unwilling to make a better deal for the Cuban people, the 
Cuban/American people and the U.S. as a whole, I will terminate 
the deal." 
    The sharp jump in the value of shares of Herzfeld's fund is 
more a reflection of investor sentiment than the fundamentals of 
the companies he owns. Unlike mutual funds or exchange-traded 
funds, which have an unlimited availability of shares and trade 
based on the underlying value of their assets, closed-end funds 
trade based on the supply and demand of a fixed number of 
shares, like stocks. 
    In one sign of the surge into his fund, shares of the 
Herzfeld Caribbean Basin fund now trade at a 4-percent discount 
to their net asset value versus a 14-percent discount late 
Friday, according to Thomson Reuters data. 
    At the same time, its top holdings - infrastructure 
construction company MasTec Inc  MTZ.N , regional airline Copa 
Holdings SA  CPA.N , and cruise line operator Royal Caribbean 
Cruises Ltd  RCL.N  - each fell by 1 percent or more Monday.  
    Herzfeld is focusing most of his portfolio on 
infrastructure, tourism and freight companies that he expects to 
benefit as Cuba's economy opens up to outside businesses. His 
fund, which charges an above-average 3.2 percent in annual 
expenses, is up 27.3 percent year-to-date, in large part because 
of a bet on infrastructure holdings that rallied following 
Trump's surprise victory on Nov. 8.  
    "We bought these companies expecting that the entire country 
of Cuba would have to be rebuilt. Now with President Trump's 
victory we have the potential to rebuild not only Cuba but the 
U.S. as well," he said.  
    His top holding, construction company MasTec Inc, is up 25.5 
percent since Election Day, while another large holding, 
Mexican-based cement company Cemex SAB de CV  CMXCPO.MX , is 
down 11.5 percent over the same time on concerns that the new 
Trump administration will raise protective trade tariffs on 
imports.  
    He has also increased his bets on companies that stand to 
benefit from increased business in Cuba itself. Marine transport 
company Seaboard Corp  SEB.A  is up nearly 39 percent for the 
year, while shares of Marriott Vacations Worldwide Corp  VAC.N  
are up 44 percent over the same time.   
    Herzfeld said he hoped Cuba would release political 
prisoners before Trump takes office in January to give a strong 
signal that it plans to work closely with the incoming 
administration.  
    "You would then have a clear view that things are on track 
to normalizing relations," he said.  
     
 
 (Reporting by David Randall; Editing by Nick Zieminski) 
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters 
Messaging: david.randall.thomsonreuters.com@reuters.net)) 
 
Keywords: CUBA CASTRO/FUND