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U.S. policy shift finally rewards Cuba-focused fund manager
December 17, 2014 / 10:20 PM / 3 years ago

U.S. policy shift finally rewards Cuba-focused fund manager

(Reuters) - After twenty years, Thomas Herzfeld’s long bet on Cuba is paying off.

The Miami Beach-based portfolio manager behind the $25.3 million Herzfeld Caribbean Basin fund, the only Cuba-focused fund in the United States, watched its shares soar more than 40 percent at one point on Wednesday after President Barack Obama’s surprise move to thaw relations with the island nation.

Herzfeld, 69, said he launched his fund in 1994 inspired by his daughter, who was 16 at the time and had many Cuban-American friends in school.

”She told me: they’re very successful and came here with nothing. You should do some business with these people,” Herzfeld told Reuters.

He said he started investing in South Florida businesses owned by Cuban-Americans assuming that they would expand into Cuba once relations with Havana thawed. For years, he has kept a post office box for all correspondence after receiving death threats from Cuban-Americans who fiercely opposed the Communist regime in Havana and saw his fund as an attempt to circumvent the U.S. embargo.

The fund, which trades under a ticker CUBA, owns U.S. and Latin American-based companies which Herzfeld and his son, who co-manages the fund, expect to benefit from an eventual resumption of U.S. trade with Cuba. Its largest holdings include Panamanian airline Copa Holdings SA, U.S.-based infrastructure company MasTec Inc, and Mexico-based Coca-Cola Femsa SAB de CV.

His firm, which manages in total about $270 million in assets, has registered a second fund with the Securities Exchange Commission that would be a pure play on Cuba itself, Herzfeld said.

Herzfeld, who would not say whether he has ever traveled to Cuba, until earlier this year was best known for publishing a monthly report called “The Investor’s Guide to Closed-End Funds.”

But he has held steadfastly to his belief that the Cuba bet would pay off and said his optimism grew after long-time leader Fidel Castro stepped down in 2008 and the 2012 presidential election, which secured a second term for Obama.

”I’ve believed for a while now that after the election it would be clear sailing toward lifting the embargo.”

In addition to firms expected to benefit from closer ties with Cuba, the fund owns stakes in non-publicly traded companies as well as securities that Herzfeld now values at zero.

One such holding is shares of Cuban Electric Co, whose long claim against the Castro government for confiscating its power plants will eventually be settled by a new Cuban government, he said. The fund also owns long-defaulted Cuban sovereign debt that was due in 1977, according to the fund’s most recent letter to shareholders.

Over the last 10 years, the fund has returned on average 7.7 percent a year, according to Morningstar, or one percentage point above the average mid-cap blend fund. Until Tuesday, the fund was down 6.9 percent for the year.

While some of its largest positions are in listed firms such as Mastec, the fund’s small size and closed-end structure will allow it to invest in “mom and pop businesses” now run by Cuban-Americans in Miami, he said.

“We want to be involved in every aspect of rebuilding the country,” Herzfeld said.

Reporting by David Randall; Editing by Linda Stern and Tomasz Janowski

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