December 17, 2014 / 7:06 PM / 5 years ago

UPDATE 1-Some big stock market winners emerge from Obama move on Cuba

(Updates with closing prices, analyst’s quote and links)

By Dan Burns and David Randall

NEW YORK, Dec 17 (Reuters) - A tiny mutual fund based in Miami, a clutch of cruise line operators and a Canadian natural resources company rank among 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. By the close of trading it had gained 28.9 percent on the day.

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 24 million shares, by far a record amount of trading for the fund and the day’s total by early afternoon was the equivalent of nearly 50 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 hub in Colombia 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.

The fund also holds shares of several cruise line operators that could benefit from increased tourism, and all saw big gains on the day. Royal Caribbean rose 6.6 percent to a record, Norwegian Cruise Line Holdings gained 4.6 percent to end just shy of a record high and Carnival Corp gained 3.5 percent to finish the day at its highest since early 2011.

Other top fund holdings include Latin American soft drink distributor Cola-Cola Femsa, up 2.4 percent; shipping and agribusiness concern Seaboard Corp, up 3.2 percent; and U.S. home builder Lennar Corp, up 4.3 percent.

U.S. agricultural exporters stand to benefit as more traditional trade financing is being made available to customers in Cuba, who have previously had to pay cash in advance, said Jorge Dominguez, a professor at Harvard University.

Providers of telecommunication services and building materials for residential construction also will be allowed to sell into the country.

“A company that would export building materials for private residential construction would be a winner,” Dominguez said.

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 rose 26 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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