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Saturday, February 23, 2008

Investors bet on Cuba's future

HERZFELD FUND
Investors bet on Cuba's future
A Cuba investment fund is Miami's version of irrational exuberance with
a salsa beat.
Posted on Wed, Feb. 20, 2008
BY MARTHA BRANNIGAN
mbrannigan@MiamiHerald.com

A small Miami investment fund that rises and falls in counter-step to
the apparent strength of Fidel Castro's health rose 17 percent Tuesday.

Shares of the Herzfeld Caribbean Basin Fund, which trades on the Nasdaq
under the ticker symbol CUBA, closed at $8.70, up $1.26, after Cuba's
aging leader declared the end of his presidency.

''It's my birthday and Castro is giving me a birthday present,'' said
Thomas J. Herzfeld, the investment advisor who created the closed-end
fund in 1993 in anticipation of the day political change opens Cuba to
investment.

BUSINESS CLIMATE

To be sure, Cuba's business climate is unlikely to change in the near
term. But that isn't stopping stock investors from hunting for ways --
such as Herzfeld's fund -- to bet on the island's future after Castro.

The fund, which has assets of about $30 million, has long invested in
solid companies with Caribbean operations that are doing well but should
eventually benefit from an opening of trade with Cuba. That has
traditionally included companies such as Carnival and Royal Caribbean
Cruises. On Tuesday, for example, UBS stock analyst Robin Farley cited
the possibility of Cuba opening to American tourism as ``a significant
opportunity for cruise operators.''

As Fidel Castro's end draws closer, Herzfeld has begun diversifying into
stocks that aren't necessarily doing great now, but should benefit if
Cuba opens up. One example: Fuego Entertainment. The Miami Lakes company
is involved in making and marketing music and other entertainment.

Herzfeld also is in talks with South Florida businesses about joint
ventures to make investments in a free Cuba.

As a closed-end fund, Herzfeld's invests in securities -- like the more
common open-end mutual fund -- but it has a fixed number of shares. As a
result, depending on demand, the fund can trade above or below its net
asset value, or NAV, the net value of the investments in the fund
divided by the number of shares.

BETTER TIMES

In early 2007, the fund was trading at about twice its NAV, Herzfeld
said, but as the year wore on and Castro hung on, the share price
plunged -- even though its investments were doing well.

''As Castro started going on TV with [Venezuelan President] Hugo Chávez,
people realized he wasn't dead, and our stock price declined,'' said
Herzfeld.

The fund price dived 42 percent during 2007, even though its net asset
value rose 19 percent. With the big jump Tuesday, the fund trades at
about 7 percent above its NAV, which has fallen roughly 2 percent so far
this year -- far less than the Dow Jones Industrial Average.

''We beat the market last year, and we're beating it so far this year,''
Herzfeld said.

http://www.miamiherald.com/1237/story/425501.html

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