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Some big stock market winners emerge from Obama move on Cuba
December 17, 2014 / 7:15 PM / 3 years ago

Some big stock market winners emerge from Obama move on Cuba

NEW YORK (Reuters) - A tiny mutual fund based in Miami, a clutch of cruise line operators and a Canadian natural resources company are the early winners in the Obama administration’s surprise move on Wednesday to thaw relations with Cuba.

After more than five decades of frosty relations and U.S.-imposed economic embargoes, President Barack Obama unveiled plans to relax some aspects of commerce and transportation between the two countries. An outright end to the longstanding trade embargo, however, is not in the cards for now.

While the Cuban economy is small, with gross domestic product of roughly $70 billion, according to the World Bank, comparable to that of Hawaii, investors nevertheless scrambled to capitalize on the new dynamic between Washington and Havana.

In particular, they quickly zeroed in on one fund: the Herzfeld Caribbean Basin Fund.

Shares of the $34 million closed-end fund, which trades on Nasdaq under the ticker “CUBA,” soared by as much as 47 percent to a seven-year high after reports of the breakthrough early on Wednesday. Its holdings include around 60 securities that fund manager Thomas Herzfeld believes would benefit from an eventual end to the U.S. economic embargo against Cuba.

Volume topped 20 million shares, by far a record amount of trading for the fund and the day’s total by early afternoon was the equivalent of about 40 percent of the cumulative volume the fund has experienced since its listing in 1994.

That excessive demand pushed the fund’s price to gain far more than most of the stocks it holds. That is because, unlike open-ended funds, closed-end funds have a fixed number of shares. As a result, their value reflects both the underlying assets as well as the supply-and-demand dynamics of the fund shares themselves, leading some funds to trade at a discount to their underlying assets and others that are in high demand to trade at a premium.

Still, several of Herzfeld’s holdings were outperforming the wider market on Wednesday.

Its largest stake is Panamanian airline Copa Holdings SA, accounting for around 8.5 percent of fund assets. Shares of the airline, which flies into Havana from its Bogota, Colombia, hub, were up 5.4 percent.

By comparison, the broad S&P 500 index was up just over 1 percent.

MasTec Inc., a U.S.-based construction services company, is the No. 2 holding accounting for 6.3 percent of fund assets and was up 7.3 percent.

Other top fund holdings include, Cola-Cola Femsa, up 2.4 percent; Royal Caribbean, that rose 4.7 percent to a record high; Seaboard Corp, up 1.5 percent; Lennar Corp, up 3 percent; Norwegian Cruise Line Holdings, up 2.2 percent.

Aside from the holdings of the fund, another big gainer was Sherritt International Corp, a Toronto-based natural resources company that derives nearly three-quarters of its revenue from operations in Cuba. Its shares were up 24 percent in trading in Canada.

Sherritt is the largest independent energy company in Cuba and operates the Moa nickel mine in the eastern part of the Caribbean island state of 11.3 million people.

Additional reporting by Ashutosh Pandey and Narottam Medhora in Bangalore; Editing by Tomasz Janowski

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