Traders Pile Into Boutique Cuba Fund in Bet on Biden Detente

A niche fund that investors use to wager on the opening of Cuba’s economy is emerging as one of the winners from Joe Biden’s election.

The $43 million Herzfeld Caribbean Basin Fund, ticker CUBA, has soared 33% since the U.S. vote, trouncing the returns of the MSCI Emerging Markets Index (12%) and S&P 500 Index (9%). The fund is headed for its sixth straight weekly gain, and November marked its largest monthly advance in 11 years.

Traders Pile Into Boutique Cuba Fund in Bet on Biden Detente

Investors are betting that Biden will pursue policies similar to those he helped champion during the Obama administration, allowing for more tourism, remittances and engagement with the government that would bring the countries closer to normalized relations. The CUBA fund focuses on stocks that might benefit from an economic opening, with a concentration in travel companies, banks and builders that already operate in the region. It also holds defaulted Cuban debt that was due in 1977.

“Biden is much more favorable to opening relations with Cuba,” said Erik Herzfeld, a Miami Beach-based money manager who helps oversee the CUBA fund. “We’re in a much better position now. All it takes is for the Treasury Department to relax some restrictions. That’s the real key.”

CUBA climbed 3.8% on Friday, the most in almost a month, while trading volume spiked to 224% of the fund’s three-month average.

Easing Restrictions

The investor optimism has been fueled by expectations that the Biden administration will roll back some of the Trump administration’s “maximum pressure” strategy. Biden said in October that the U.S. needs a new Cuba policy and said earlier that he would go back to the Obama administration’s friendlier approach.

Cuba is also making reforms on its own, ending a decades-old dual-currency system. Doing so will put the country on a sounder footing “to go ahead with the transformations that we need to update our economic and social model,” President Miguel Diaz-Canel said in a televised speech late Thursday, accompanied by former President Raul Castro.

Given U.S. sanctions, CUBA is one of the few assets that American investors can use to wager on the island nation. The fund has limited direct exposure, instead holding companies such as infrastructure builder MasTec Inc., the banking group Popular Inc. and Royal Caribbean Cruises Ltd. that might be well-positioned if the Cuban market were to open to them.

While many of the fund’s stocks are in the hospitality sector that has soared recently amid signs of progress on Covid-19 vaccines, CUBA has returned almost twice as much as the Dow Jones Travel & Leisure Titans 30 Index since the election. It’s also beaten all 1,659 emerging-market funds tracked by Bloomberg with at least $25 million in assets, including some with significant exposure to the travel industry.

The fund’s price has swung widely over the past decade, with movement often tied to Oval Office policies.

During a four-year span ending in January 2007, it quintupled in value. Looking across presidencies, its biggest gains came during Barack Obama’s administration, when the U.S. moved toward normalizing relations with Havana. Under Donald Trump, the portfolio suffered losses that were exacerbated by the Covid-19 pandemic.

U.S. PresidentCUBA annualized returnS&P annualized return
Bill Clinton*-1.8%19.8%
George W. Bush6.7%-4.5%
Barack Obama6.8%16.3%
Donald Trump**2.2%15.2%

* Based on CUBA’s first trading day in 1994.

** CUBA’s annualized return crossed into positive territory after Biden’s win.

Wanting to Believe

John Kavulich, president of the U.S.-Cuba Trade and Economic Council in New York, cautioned that while Biden may ease some restrictions on commercial flights and remittances, it won’t mean the island is fully open for business.

“There are always those who want to believe in the upside, but most of the time, they aren’t decades-long followers of Cuba,” he said.

©2020 Bloomberg L.P.

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