NEW YORK -- The stock symbol of the Herzfeld Caribbean Basin Fund, a closed-end fund trading on the Nasdaq small-cap market, is CUBA.
But even these politically charged times don't keep the fund's managers from calling themselves politically correct.
While the fund's mission statement, according to its annual reports, is to "invest in companies that benefit from economic, political, structural and technological developments in the countries in the Caribbean Basin," its manager, Thomas Herzfeld, has an eye toward investing in Cuba once the embargo is lifted. Hence its stock symbol.
Investor perception that the fund has ties to Cuba is pushing the price down, Mr. Herzfeld said, but the fund doesn't invest in any companies that do business in Cuba, even though it could.
"We are very politically correct," said Ted Williams, a vice president at Thomas J. Herzfeld Advisors, which runs the fund from its base in Miami, the center of the anti-Castro movement.
It's a good thing for the fund it is politically correct. Last weekend, Cuba shot down two unarmed U.S. planes piloted by a Miami-based Cuban exile group.
The United Nations Security Council issued a statement deploring the action, and President Clinton and Republican lawmakers agreed on tougher sanctions for Cuba, including tightening travel restrictions and prohibiting third countries from exporting to the U.S. sugar and other products made from Cuban raw materials. The agreement also directs the president to veto Cuban participation in international lending institutions.
The closed-end fund, the closest vehicle that Americans have to invest in the country run by Fidel Castro, has actually seen its asset value rise almost to an all-time high last week, even as its price dropped 4 percent.
The fund's net asset value, or the value of the shares it holds, jumped to $5.12, close to its high of $5.16 hit in September 1994, thanks to an investment in a Florida-based company.
The drop in share price means that the fund is also cheaper to buy than it has been for a while. It's now trading at a premium of about 9.8 percent to its net asset value, compared with an average of 27 percent over the past 12 months.
Its lowest premium in that period was 3.96 percent in July 1995, and its highest was 70.92 percent in September 1995, according to Lipper Analytical Services.
What's driving up the value of the fund is the good news coming from the fund's largest holding, Florida East Coast Industries Inc., which makes up about 8 percent of the fund's $8.5 million portfolio.
Florida East Coast stock jumped 11 percent in the last few days after the company's largest shareholder offered to acquire its real estate development unit, Gran Central Corp.
Herzfeld's philosophy is to invest in companies that are "good investment opportunities now, but that in some way have a Cuban kicker if the embargo is lifted."
Florida East Coast is a perfect example. Herzfeld bought a stake in the company because its shares were inexpensive. It would benefit from an opening of relations with Cuba because the company runs a railroad from Jacksonville, Fla., to Miami, two ports where cargo would be shipped to and from Cuba if the embargo were lifted. The company has plans to start a rail barge service from Florida to Cuba, post-embargo.
The fund now has about 24 percent of its portfolio in the United States, about 15 percent in Mexico and 8 percent in Panama.
It also has holdings in Belize, Puerto Rico, Venezuela, Costa Rica, the Cayman Islands, the Netherlands Antilles and the Virgin Islands, as well as pre-Castro Cuban debt. About 38 percent of the portfolio is in U.S. Treasuries or in cash equivalents.
A big bet is in consumer products companies, where the fund has about 16 percent of its money. Those holdings include Mexico- based Coca-Cola Femsa SA, cigarette company Empresas La Moderna SA and Grupo Casa Autrey SA, a distributor of drugs, health and beauty aids and candy.
The company also owns WorldCom Inc., a U.S. company that started telephone service to Cuba last year. The new sanctions do not affect phone service between the United States and the island.
As a Latin American investment, the fund hasn't fared as well as some of its competitors, in part because a large portion of its assets are in U.S. bonds.
From the fund's inception in September 1993 through the end of January, the fund's NAV has lost a cumulative 4.7 percent of its value. That places it ninth out of 12 closed-end Latin American funds, according to Lipper. Average performance for the group was a return of 6.04 percent.
Other fund managers argue that this year, other parts of Latin America will do better than the Caribbean basin.
Carlos Bachrach, who runs Pareto Latin American Partners in Washington with his brother Miguel, has 40 percent of a $100 million portfolio in Brazil. He isn't a big fan of Mexican stocks and the only holdings he has in the Caribbean are in Jamaica.
Even if companies like Coca-Cola Femsa or Empresas La Moderna were to do business in Cuba, it "would not have a major impact on their balance statement," said Mr. Bachrach, since Cuba has only about 11 million people.