Global Guru's Cuba Alternatives

04/09/2015 10:00 am EST


Vivian Lewis

Editor and Publisher, Global Investing

I am delighted that the long policy of boycott and embargo with Cuba is being abandoned at last, asserts Vivian Lewis, editor of Global Investing.

However, I am also deeply conflicted about the persistent premium to net asset value chalked up by our closed-end fund recommendation, Herzfeld Caribbean Fund (CUBA), whose ticker symbol tells you why this is happening.

But, all the same, just buying Tom Herzfeld's CUBA fund—despite its excessive valuation—now goes against my grain (and would likely go against his own buying strategy).

As Herzfeld writes in his 1998 Encyclopedia of Closed-End Funds, "I compare funds with similar portfolios, buying the one with the widest discount." He added: "When looking at individual issues, the most profitable approach is that of the contrarian: Buy on bad news, sell on good news."

Tom, being a shrewd fund manager, is now setting up another secondary issue of more CUBA shares to sop up the demand from buyers of his fund.

Meanwhile, in our main stock portfolio we own some shares that Tom's fund owns, ones which you can buy without paying a premium of over 18%, starting with his favorite future Cuba beneficiary, Copa Holdings, CPA, the Panama-based airline.

If you do not want to risk an airline share, you can buy Aberdeen Latin America Equity (LAQ), at a 9.8% discount from NAV, or Latin America Discovery (LDF), at an 8.9% discount.  However, I would caution that I consider LAQ to be too focused on Chile.

In my view, we are better off with a fund whose management is quicker and quirkier, Mexico Equity and Income Fund (MXE), trading at an 11.6% discount.

MXE is quirky because it is run—in macho Mexico—by Maria Eugenia Pichardo, a woman. Of course, the present, supposedly, reformist government is tainted by real estate deals by the first family and impunity over the murder of education students.

But important changes are being made to limit the depredations of the telephone monopoly, the teachers' and oil-workers' union, and other traditional Mexican power brokers. 

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