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Trump could derail the rally in this Cuban fund that’s been 25 years in the making

People celebrate Castro's death in Miami
ReutersJavier Galeano
A long time coming.
By Eshe Nelson
Published Last updated This article is more than 2 years old.

For 25 years, the fund managers at Thomas J. Herzfeld advisors in Miami have been patiently waiting for the US embargo on Cuba to lift. They run the Caribbean Basin “CUBA” fund, and in 2015 their investors got a tantalizing hint of a payoff when president Obama started the process to normalize relations. It then got another, much-needed boost this week with the death of Fidel Castro.

It’s been a rough ride for the fund’s investors. The share price of Herzfeld’s CUBA fund climbed to the highest level in almost eight years in mid-2015. But then nothing much happened. While Obama travelled to Cuba and the US embassy reopened after more than 50 years, the trade embargo remains firmly in place. A key part to the fund’s strategy is betting on huge growth potential in Cuba. But with the trade embargo still intact, the fund’s returns lost investors almost 11% in the year through June.

But Castro’s death shows investors haven’t lost faith in the fund. Its share price jumped 9% on Monday.

Herzfeld, who manages the closed-end fund and invests in it, hails the death of Castro, Cuba’s former communist leader, as a “new era.” For Herzfeld Advisors, Cuba offers the greatest potential returns for investors in the Caribbean. “We are as ready as we can be if full commerce with the United States resumes,” Herzfeld said.

While the fund doesn’t own any Cuban assets, it invests in companies that have a “strong presence” in the country. In June, it reported that more than half of the holdings were American. The fund holds stock in several cruise companies that have started running cruises to Cuba or have plans to do so. It owns stock in Copa Holdings, a Latin American airline provider that offers flights to Cuba. The largest single holding is in Florida-based company MasTec, an engineering and construction company, that could benefit from the development of infrastructure in Cuba. The company’s founder, Jorge Mas Canosa, was an exile from Cuba who started the Cuban-American National Foundation and was staunchly against Castro.

But investors should keep their enthusiasm in check. The death of Fidel Castro might not change much for Cuba’s relationship with the US and the fund faces a new hurdle: Donald Trump.

The president-elect has taken to Twitter to reiterate his demand for more concessions from Cuba that could send relations back to 1962. He says he wants “religious and political freedom for the Cuban people and the freeing of political prisoners,” otherwise he will stick to his campaign promise and void Obama’s 2014 deal.

After clawing back from an 11% loss last year, investors in the CUBA fund could be consigned to four, or even eight, more years of tepid returns and the fund’s 25-year-old dream could stay on hold.

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