Herzfeld Caribbean Basin Fund falls to discount to net asset value
Posted: 17 December 2007 10:02 PM   [ Ignore ]
Total Posts:  992
Joined  2005-11-19

By Rick Aristotle Munarriz | Motley Fool

It finally happened. Herzfeld Caribbean Basin Fund (Nasdaq: CUBA), a volatile closed-end fund that aims to cash in if we ever see a free Cuba, is trading at a discount to its net asset value again.

It’s been a long round trip back to sanity.

Shares of the publicly traded fund took off like guayabera sales in Miami late last year, when Fidel Castro’s ailing health left opportunistic investors looking for ways to play a potential shift in political power on the island that lies just 90 miles away from the United States.

Some investors flocked to likely beneficiaries, including cruise-ship operators Carnival (NYSE: CCL) and Royal Caribbean (NYSE: RCL), as well as railroad operator Florida East Coast Industries. Florida East Coast was acquired in July by a company formed by certain private-equity funds managed by affiliates of Fortress Investment Group (NYSE: FIG)). Investors sensed that Castro’s demise would mean an end to the long-running travel restrictions and trade embargo, figuring that opportunities would arise with cruises making Havana a port-of-call and goods circulating up and down the state of Florida.

However, the real speculative buzz took place in Herzfeld’s fund. The fund owned many of these stocks, but the closed-end fund shares overshot the value of its holdings. It was not sustainable. Dan Caplinger warned you in January. I followed two weeks later.

By early February, Herzfeld’s fund was trading above the $15 mark, even though the underlying net assets were worth a mere $8.44 a share. “Would you pay me $1.80 for a dollar bill?” I asked at the time. “That’s exactly what’s happening here, and apparently, there’s a sucker born every uptick.”

It was a ludicrous premium, so I was heartened when I checked back on the fund over the weekend. The stock closed at $8.08 on Friday, a 2% discount to its NAV of $8.28 a share.

Anatomy of a buildup and breakdown

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