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Herzfeld Caribbean Basin Fund – CUBA

Rob Sequin | Havana Journal

The fund’s investment objective is long-term capital appreciation. According to the Report “To achieve its objective, the Fund invests in issuers that are likely, in the Advisor’s view, to benefit from economic, political, structural and technological developments in the countries in the Caribbean Basin, 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 United States and Venezuela (“Caribbean Basin Countries”).”
Herzfeld invests in “Caribbean Basin” related businesses but it does not have the stock symbol CUBA for no reason. The shares seem to trade in the $6 to $7 range but there is usually a pop in the price when there is big news in the US about Cuba and usually when there is big news in Cuba. Even though there have been many economic changes, the fund has not increased in value much over the past couple years.

Investment Strategy and Outlook

The Fund seeks long-term capital appreciation through investment in companies which the Advisor believes are poised to benefit from economic, political, structural and technological developments in countries of the Caribbean Basin. More specifically, our investment strategy, since inception, has focused on Caribbean Basin companies that would benefit from the resumption of U.S. trade with Cuba.
Since it is impossible to predict when the U.S. embargo against that country may be lifted, we have concentrated on investments which we believe can do well even if there is no political or economic change with respect to that country.
Our early investments were primarily in large companies with strong earnings and balance sheets. These include global organizations which have the potential to do business in Cuba, and which currently have varying exposures to that country. This strategy has worked well over the years; original shareholders in the fund have more than doubled their money.
Recent developments indicate to us that the prospect of resumption of trade with Cuba is just beyond the horizon. Fidel Castro’s age and health are certainly factors and the upcoming visit by Pope Benedict this March is highly significant. We cannot help but notice the changing attitudes of Americans towards Cuba.
Going forward, as opportunities arise, we will seek to modify our investment approach to include some speculative holdings using a more highly focused Cuba strategy. Initially, this will be done only with a small portion of the portfolio. We accept that these new portfolio companies may currently have weak balance sheets and/or no current earnings in exchange for their future potential.

Stocks owned by Herzfeld CUBA fund

The fund only invests in one airline, Copa Holdings, S.A. but invests in a number of regional banks such as Bancolombia, Banco Latinoamericano de Exportaciones and Puerto Rican bank Doral Financial Corp.. The fund owns 20,000 shares of Western Union. This seems to be a good investment since all Americans can now send money to Cuba, with restrictions of course.
América Móvil and Atlantic Tele-Network appear to complement the investment portfolio.
Some food related investments are Chiquita Brands International, Coca Cola Femsa and Fresh Del Monte Produce.
The fund’s investments in Carnival Corp and Royal Caribbean Cruises are worth more than $1,000,000 each.
More than 10% of the Net Assets are attributed to Seaboard Corporation. While this publicly traded company can have the legal ability to ship US agricultural goods to Cuba, the management has made a personal decision NOT to engage in that activity.
One investment that I found to be very interesting is Hugo Cancio’s Fuego Enterprises Inc. aka Fuego Entertainment. “Fuego Enterprises, Inc. is a diversified holdings company with operations in media and entertainment, telecommunications, and other industries currently under development. Fuego Enterprises is based in the U.S. with a focus on Latin markets.”
Mr. Cancio and his company invested a lot of time and money to produce the Cuban Music Festival scheduled for April 2011. It was cancelled due to alleged political pressure and the ACLU got involved.Herzfeld has the investment flagged as “Non-income producing”.

Havana Journal Inc Publisher Disclosure: I have a financial interest in this fund. This article was written for informational purposes only and is not a solicitation to invest. Havana Journal Inc was not compensated in any way for this article.

 

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