Investing in a Post-Castro Cuba

This closed-end fund bets on backdoor investments in the island.

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Here's a fund that should have a wild ride this week (with Cuban President Fidel Castro announcing his retirement): Herzfeld Caribbean Basin (symbol CUBA). The closed-end fund, which trades on an exchange like a stock, invests in U.S. and Latin American companies that could benefit if trade resumes between the United States and Cuba.

These include Trailer Bridge, a marine freight carrier that runs a fleet of vessels made for shallow waters; Copa Holdings, a Latin American airline that makes daily flights to Havana; Watsco, a Florida-based manufacturer of air-conditioning and refrigeration equipment; Consolidated Water, which supplies potable water in the Caribbean; and Carnival and Royal Caribbean Cruises.

Shares of closed-end funds can be worth more or less than the assets they hold, depending on investor demand. This fund has often traded at a discount to its net asset value over the years, but news events can cause swings in its share price (in February 1996, for example, shares plunged when Cuba shot down two U.S. civilian aircraft). As of last week, the Herzfeld fund was trading at a 7.5 percent discount to its NAV. Jon Ogg at 24/7 Wall Street points out that the fund's total share count is small and its market capitalization is just $12.5 million, so today's moves could be quite exaggerated.